Sunday, December 11, 2011

TUC Trustee Conference 2011: Auto enrolement

Catch up from last month's TUC Pension Trustee conference "People & Profits".  I went to a useful workshop by the Pensions Regulator on "Auto-enrolment and workplace pensions reform - the role of trustees".

I don't think (in fact I am pretty certain) that many people realise that in a year or so, if they are not in a pension scheme, they will be compulsory enrolled into one. Employees, employers and the government will have to make minimum payments. Employees will have a month to come out. However, many think that due to inertia they will not "opt" out. This is good news on a number of levels. Currently 2/3rd of private sector employees receive no pension contribution whatsoever from their employers. While 50% of workers in the private sector have no pension provision at all. These workers face desperate poverty in their old age and taxpayers will have to pick up the bill for basic social security.

It's not all good news.  The contribution levels are very, very low. 3% employer, 4% employees and 1% tax relief. 8% of your income in pension contributions is no where near enough to get a decent pension.  The old pension adage use to be you that to get a pension of half pay and a lump sum you needed to have the equivalent of 20% of your income invested for 40 years. There are also a number of exemptions. But it is a start. 

There is also a legitimate fear that employers who currently pay more into pension schemes might level down.  Some people opposed the introduction of the national minimum wage for the same reason that it would depress wage rates but this didn't happen. I am more worried that employers who currently only have say 50% of employees in their scheme may cut back on contributions because the total bill will rise if 75% are now in (or introduce a two tier pension scheme for existing and new scheme members).  The Unions need to be wide awake about this risk. 

I also spoke at a recent UNISON Community Service Group Executive meeting and at last week's NEC about the organising opportunity that Auto-enrolment gives us.  The unions must be at the centre of all what is going on.  The greater the density and the organisation we can achieve - the better the final pension deal.

Of course for the public service pensions schemes, if members have to pay 50% more in  contributions (nearly 10% of their income) after years of pay cuts, as well as retire much later and get less, then existing members, never mind the new ones will simply walk.  They will leave the scheme in droves and the schemes will become unsubstainable and collapse. The Local Government Pension Scheme (LGPS) will turn from being cash positive to cash negative in a few years and all Council finances could be completely and utterly shot to pieces.

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