First speaker was Paul Moloney (left) Nautilus assistant General Secretary. This union has merged with the Dutch and organises Merchant marine officers. His contribution was entitled “Engaged Investment: is there power in the union?”. Paul set the agenda that current pension policy was failing and we have the spectacle that the major economies of the world are not putting enough money aside to support decent pensions for its workers. He would like to see a co-ordinated response by pension fund trustees to force up safety and other standards in the maritime industry. This is not only good for the maritime unions but also for the pension funds since he argues that “without fail” investment in industries with good safety records produces long term sustainable investment returns.
Derek Benstead (First Actuarial) was next and he talked about “Pension design: is it time to think outside of the box?”
He pointed out that we will never do away with risk. Current 20 years old will probably draw pensions until they are 90. They will live through a number of recessions. Pension schemes which are too rigid will break. His solution is to share risk between state, employers and employees. In his view the Pension Protection Fund is the biggest and best thing to happen in pensions. Defined benefit is just too expensive and “risky” for employers. While the risk for employees with money purchase scheme is that if you are on £30k per year and trying to get £10k per year pension you may end up with £5k or £15k.
His solution is a hybrid pension, Defined contribution for members and 1/120th defined benefit for employers. There should be no refunds back to employers for any pension surplus. Schemes should be career average. He believes that it is important that there should only be discretional annual benefits increases only. He thinks that a major reason for the demise of pension schemes is the law now requires pensions to be increased by up to 2.5. % per year. He thinks this is too expensive and that they should be allowed to go down as well. Need more flexibility. Derek played the role of “Mr Bad Guy” with most of the audience.
David Pitt-Watson (right) was last with “Why a collective approach in investment could be the key to solving the pension’s crisis”. See Union 21 video
David started off as someone who is a City worker by apologising for the complete mess the “City” had made of things recently. He has been doing a lot of research in recent years on Pension structures and costs of investment with Matthew Taylor and the RSA. Including “Citizen Juries" (I was a “witness” to one of these Juries). Defined Contribution (aka money purchase) Pension policy holders typically pay a fee of 1.5% pa. This works out over the lifetime of a policy as 38% of your money goes in fees and you get only 62%. In good Defined Benefit (aka as final salary) schemes it only cost 10% in fees so you get 90% back. If at age 25 you invested £10,000 in a DC single pension premium it will generate £94,000 of fees!
Annuities are also very expensive. The issue is not so much Defined Benefit (DB) v Defined Contribution (DC)? Rather large collective pension schemes v small ones. For example women teachers in a USA scheme who aimed to retire on $2k per month. If a collective “pension pot” rather than annuity provided this money. It would cost a teacher 12.5% of her salary collectively. It would cost 23% salary if done individually. So “by design” pensions could be 83% higher. David admitted he’s been startled over some of the stuff he has read over last 18 months on this subject.
There was a useful Q&A. The risk of large collective DC schemes just ending up as modern day Equitable Life. My question is since the “problem” with DB schemes in increased life expectancy why are DB schemes now “unsustainable” despite many schemes putting back retirement ages? The consensus answer was that DB schemes are still sustainable if more money is paid into them or benefits reduced (or both).
One Unite member of the audience (Peter Sykes?) pointed out that when he hears the term “flexibility” he has to reach for his wallet.
Actuary Hilary Salt asked why did employers introduce DB schemes in the first place? It was to recruit and retain quality staff. This need still remains. There is a new "off balance" risk to companies. Since many employees will be too poor to retire and age discrimination will mean you can’t sack them. Companies will have to pay them off in the future.
Naomi Cooke from GMB pointed out the risk on state from inadequate pensions. Otherwise the low paid and those without decent pensions will have to reply on state benefits. We need to inflation proof pensions or the tax payer will have to pick up the cost. Have to design pensions around what society wants to produce.
Richard Balfe, the Tory advisor on trade unions to Cameron was also there and he actually spoke strongly in favour of public sector defined benefit pensions (shock horror) as not being “gold plated”.
Another person reminded everyone that DB still flourishes in the UK - but only in the board rooms of highly paid top 100 company directors!
A former TUC pensions officer pointed out in 1979 had the Tories not been elected we were on course to have a basic pension of 25% average earning and another 25%% from SERPS. So the average earner could have retired with 50% of earning.
Lets hope that 2010 does not turn out to be another 1979 of lost opportunities for social progress!
Update: I forgot to mention that Alan MacDougall from PIRC had also written a chapter in the report called "Responsible Investment: An Essential Trade Union Tool" but he was unable to attend.
2 comments:
Unfortunately no-one from the UUL has yet printed a boastful report about their big 'burn-in' outside the TUC on Monday. Do you have any information John about just how successful this incendiary protest was?
still going on with their disgraceful racist trade union bashing.
the telephone box was nearly half full.
Post a Comment