The pensions agenda
A sober assessment of the current state of UK pensions was provided shortly before the 2010 election by the National Association for Pension Funds (NAPF): “The nation’s pensions landscape has changed dramatically over the past two decades. Our pensions system, which was once the envy of the world, has been transformed to one in which 12 million people are either not saving or not saving enough and defined benefit (DB) pensions are in decline” (Fit for the Future, NAPF’s vision for pensions).
Ed Sweeney, formerly joint general secretary of Amicus (forerunner of Unite) and Chris Lewin (formerly head of UK Pensions at Unilever) took a similar view in their Deregulatory Review of private pensions three years earlier. Increasing longevity, collapses in equity markets and — as they saw it — a regulatory “burden” was causing upheaval and change: “Even where employees do still belong to occupational schemes, many of them nowadays belong to schemes where contributions may not be high enough to provide an adequate pension.”
In its pre-election report, ThePolitics of Pensions, the National Pensioners’ Convention described our basic state pension as among the lowest and least adequate in Europe, with means-tested benefit (Pension Credit) only reaching 70% of those eligible for it.
Rodney Bickerstaffe, former UNISON general secretary, argued that the focus on occupational pensions has taken eyes off the state system. Sweeney and Lewis also commented on “the growing distance between the dwindling number of employees who retain solid pension entitlements, and those with inadequate or no provision.”
The last Labour government started out in 1997 with the belief that the proportion of pensioner incomes coming from the state would reduce, in time, from 60% to 40%. Instead, the retreat from quality workplace pensions has accelerated prompting the establishment of the Pensions Commission to investigate moving “beyond the voluntary approach”.
The Pension Protection Fund (PPF) was created to protect workers’ pensions entitlements, backed up by a new Pensions Regulator (through the Pensions Act 2004) and simplification of the pensions tax regime (through the Finance Act 2004).
The Pensions Acts of 2007 and 2008 triggered current and future changes both to the state pension system and (starting in 2012) workplace pensions. These measures, which include auto-enrolment and a new pensions saving scheme (NEST) have been broadly welcomed.
The coalition programme
The Conservative-Liberal Democrat coalition government took on many items from the previous administration’s “to do” list relating to pensions, including a limit on public sector pensions, ending the default retirement age and restoring the state pension-earnings link:
Basic state pension
The Consumer Prices Index (CPI) rather than the usually higher RPI will be used as the measure of prices in the “triple guarantee” but in April 2011 the increase will be at least the equivalent of RPI.
The standard minimum income guarantee in Pensions Credit will have an above-indexation increase in April 2011, rising by the cash rise in a full basic state pension. However, the adoption of the CPI for the indexation of other benefits (and changes to Housing Benefit) will affect future pensioner income.
Pension age and retirement
Consultation on accelerating the increase in State Pension Age to 66 began within days of the June 2010 Budget and concludes on 6 August 2010.
Occupational and private pensions:
A review of the 2012 private pension reforms was also set up within days of the June 2010 Budget but the government was urged not to threaten the consensus behind auto-enrolment. Aspects of the settlement had been accepted reluctantly by the TUC and consumer groups (contribution levels and limits, prohibition on transfers in and out of NEST, concerns about interaction with means-tested benefits), and “re-opening these issues now could be destabilising”.
Public sector pensions
Former Labour minister John Hutton was appointed to chair the commission to undertake a fundamental, structured review of public service pension provision by the time of the 2011 Budget and consider the case for short-term savings in the Spending Review period by September 2010. Public service pensions to be indexed to CPI inflation rather than the RPI.
The Queen’s Speech on 25 May 2010 included a Pensions and Savings Bill, an Equitable Life Payments Scheme Bill, a National Insurance Contributions Bill and a Postal Services Bill with measures on the Royal Mail’s pension deficit. The June 2010 Budget confirmed coalition policies and initiated reviews of the state pension age, state pensions and the 2012 reforms.
The wider agenda
The existing pensions agenda is wider than the coalition programme suggests. It includes levels of pension funding, pensions for high fliers, implementation of auto-enrolment and compulsory company contributions to workplace pensions from 2012. Vested business interests may have their own agenda, but at the same time there is a place for “fresh thinking”. The TUC welcomed the NAPF vision of better state and occupational pensions in future, describing it as serious and constructive while disagreeing on some points. NAPF called for:
• a new state Foundation Pension combining the basic and state second pensions;
• Super-Trust multi-employer schemes providing access to better pensions;
• new forms of “risk-sharing” in workplace pension schemes;
• an increasing level of mandatory contributions to workplace pensions by employers and employees beyond 2012;
• a public sector pensions commission (now announced by the coalition government) but recognising the need to avoid a “race to the bottom”;
• a simpler regulatory approach and framework;
• the “right” tax incentives;
• working longer (where the government would need to consider “health inequalities and employment practices”); and
• a permanent independent retirement savings commission.
Most welcome from a union point of view, was rejection of the idea that occupational pensions are a thing of the past: “It would be a mistake to abandon aspirations for a thriving workplace pensions sector. Only collective workplace pensions can deliver the key ingredients of successful private pensions. The alternatives expose individuals to unacceptable risks and costs, and above all the risk of retiring on an inadequate income” (NAPF).
A further pre-election report published by Unions 21 called for fresh thinking on “risk sharing” between employers and employees. Collective saving could generate bigger pensions than the defined contribution (DC) schemes now popular with employers can offer, but regulatory changes to allow greater “design freedoms for middle way schemes” are likely to be called for.
Unions have shown that they can be inventive and adapt when the situation calls for it, as negotiations on scheme changes (career average pensions, risk-sharing, and defined contribution safeguards) show. Some have endorsed salary sacrifice arrangements, now widely used, that benefit from tax relief. However, unions have also shown that they can and will resist unjustified, detrimental changes. In some cases, such as IT company Fujitsu, industrial action has been used to try to defend pension entitlements, while members of the University and College Union (UCU) voted in May 2010 against two-tier pensions.
Some union reps have taken on the role of pensions champions in the workplace, getting involved in training, organising members and taking up a positions as trustees on pension boards to help get the best for scheme members. As the new government’s approach to pensions evolves and employers prepare to implement the “2012 reforms”, union reps will continue to have a central role to play as advocates for better income in retirement for everyone.