The closure of long-established occupational pension schemes by major companies, together with stock market slumps, has put pensions at the heart of political debate in recent months. Many millions of working people are worried about their future pensions, including those who are lucky enough to be in an occupational scheme, previously thought to be secure.
Some workers have been taking action to defend their pensions. Members of the ISTC community union working for the Caparo steel group took strike action in August in protest at their employer's decision to close down the final salary scheme and force existing employees to rely on a money purchase scheme in future.
And employees at the Big Food Group, owners of the Iceland supermarket chain, have also seen their final salary scheme close. For these workers the impact is immediate. Their pension entitlement from now on will be subject to the vagaries of the stock market.
But even before employers began to move away from final salary schemes, the UK pensions system as a whole was failing to ensure that everyone would get a decent income in retirement.
Occupational pension schemes only ever covered one in two workers, with the low paid and part-time women workers often losing out. Those not covered by occupational schemes were left to rely on the state system or, since the end of the 1980s, personal pensions.
The value of the basic state pension has been eroded since the Conservative government elected in 1979 broke the link between increases in the basic state pension and average earnings. In the mid-1980s they also reduced entitlement to the state earnings-related scheme (SERPS).
The Tories wanted to reduce reliance on the state scheme and gave people incentives to take out new personal pensions. Hundreds of thousands of employees were given bad advice and the private pensions industry is only now mopping up the last cases in the mis-selling scandal that has cost it around £13 billion.
The current Labour government wants to see a long-term shift in the balance of private and state provision of pensions, with the split in the private to state share shifting from 40:60 to 60:40 over the next 50 years. A key element in this strategy are the new stakeholder pensions, a cheaper and more flexible version of personal pensions, delivered mainly by the companies responsible for the personal pensions fiasco. Early evidence, however, casts doubt on whether these are going to plug the hole in pension provision.
This booklet explains the three parts of the UK pension system - state pensions, occupational pensions and private personal or stakeholder pensions. Using findings from an LRD survey of over 100 workplaces, chapter describes the challenges facing unions in defending their occupational pensions and questions the arguments used by employers for closing down their final salary schemes. The booklet also looks at how to get the best deal available if a money purchase scheme is now all that is on offer.
The booklet also examines the pros and cons of stakeholder pensions, personal pensions, and summarises the changes to state pensions.
There will be more changes to come affecting pensions, and the booklet looks to the future, explaining promised government action as well as the proposals from the recently published Pickering report on simplification of pensions. Unions have welcomed some of these proposals, but there are others that they will firmly resist. As the future for pension provision continues to be debated by unions and others, this booklet should provide trade unionists with an understanding of the key issues.
The booklet gives details of where to go for further information and advice, and how the regulatory system works in chapter five. A glossary of pensions terms is provided at the end of the booklet.