Government Pension Consultation Paper
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My Ref: MRP 1/8/1
25th November 2013
Circular Num: NP/330/13
To: The Secretary All Branches & Regional Councils
GOVERNMENT PENSION CONSULTATION PAPER
Earlier this month the Department for Works and Pensions released a consultation paper entitled “Reshaping Workplace Pensions for Future Generation”. The consultation paper sets out to carry on the Governments pension reforms, Auto Enrolment and Single State Pension, by looking at the Defined Benefit (DB) and Defined Contribution schemes in the “private sector”.
The general purpose of the consultation paper is to make DB rules more flexible and to reduce employer risk by passing some of risk onto scheme members. The consultation also aims at making DC schemes more certain for members by promising members a certain guaranteed level of income in retirement.
The proposals contained in the consultation document if legislated would allow employers the right to change future DB pensionable service rights by introducing overriding legislation and removing, what the Government see as, restraints when it comes to making such changes.
These “flexible” DB and DC schemes will be known as Defined Ambition Pension Scheme. The following points are a brief overview of the proposals to be found in the consultations paper:
Indexation (increases to pensions in payment)
• The statutory right for employers to change scheme rules in relation to indexation of pensions in payment. This would include increases to survivor’s pension rights.
• Removing present legislation in regards to statutory indexation.
• There would be a statutory override to allow trust deed and rules to be changed which have indexation built into the rules of a scheme.
• Indexation could be replaced by discretionary increases i.e. bonuses or a general increases which could be taken away at a later date if the particular pension scheme had funding problems. Member’s pensions would then be reduced back to the original “base rate”.
Normal Retirement Age (NRA)
• The Government are proposing to allow employers to change DB scheme NRA based on improved longevity (people living longer). An example would be that life expectancy from age 65 is 20 years i.e. to age 85. Longevity then improves by 2 years so it is presumed that a member will live to age 87. The NRA is then moved to age 67 to take account of the improved 2 year life expectancy.
• It is also being proposed to make it easier for employers to move the schemes NRA in line with the State Pension Age by introducing overriding legislation.
• Employees who leave their employment, and therefore become deferred pension scheme members would see their accrued pension automatically converted into a transfer value which would then be transferred into DC scheme of the individual’s choice or the default DC scheme.
• Employers could still pay a deferred member the same benefits as already promised. However, the Government are also considering whether deferred members should be made to buy an annuity as would with a DC scheme. Therefore the DB promise would be broken and replaced by inferior DC benefits.
Defined Contribution (DC)
• In relation to DC schemes there are a number of proposals to guarantee members a set level of income at retirement and also to make sure that their retirement benefits do not fall behind the contributions made into their DC pot i.e. a “money back guarantee”.
As I have already pointed out above the Government are trying to remove risk away from employers and onto pension scheme members. This is clear by the following statement made by the Tory/Liberal Pensions Minister who states in the consultation document:
“Removing some of the regulatory constraints imposed in the past will allow new flexible forms of defined benefit pensions, which will enable employers to continue to offer pensions to members with a high level of certainty, but with much greater flexibility over the nature of benefits provided.”
The proposals being made in relation to DB schemes are nothing more than yet another attack on the working class who will be made to work longer and receive less in retirement if any of these disgraceful proposals are legislated.
While the Government’s DC proposals attempt to give a guarantee of an income in retirement it is noted that employers will not really share any of the real risk associated with these types of arrangements. As more and more workers become reliant on DC schemes providing them with some form of pension provision in retirement, unless there are firm guarantees of a fair pension income, the proposals in the consultation paper will do nothing to stop future pensioners falling into poverty.
Only decent DB arrangements can provide such a level of income to meet workers retirement aspirations and stop more pensioners relying on state handouts. The Government is yet again shameless in waging yet another attack on decent DB final salary pension schemes.
The RMT will be responding to this consultation and will use every course of action at its disposal to protect members’ pension schemes and ensure that all workers have the opportunity to be a member of a decent DB pension scheme.
I will keep you informed of developments.