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Pensions legislation needs to be simplified to balance employer risk with employee reward, says Mercer

HR consultancy Mercer has called for the next Government to reconsider the UK's approach to pensions by 'drastically simplifying' the legislation that applies to pension schemes.

The consultancy believes the sharing of risk between employer and employee will fail to develop as an alternative to traditional defined- benefit (DB) and defined-contribution (DC) schemes if the legislation remains unchanged.

According to Mercer, recent market conditions have exposed the weaknesses in the two extremes of pension scheme design - final-salary DB and pure DC. And the UK's complicated and over-prescriptive legislative regime means UK employers will not consider many workable designs that are being embraced in Europe.

Chris Sheppard, a principal in the pensions team at Mercer, said: "It is undeniably important for companies to move to reduce their pension risk exposure and rising costs but in the stampede to more affordable pensions DC has by default taken pole position while the middle ground has limped on in pursuit, hobbled by inflexible legislation."

"Such middle-ground solutions more fairly balance the risk and reward trade-off between the employer and employees.

"From an employee perspective, a move from a final-salary to a DC scheme is a hospital pass - all the risks pass from the company to employees in one swift move. The lack of alternative options to final- salary and DC, however, encourages companies to treat DC as the default option when reviewing pension provision. Adopting some of the European approaches could provide a range of new choices and reinvigorate the industry."