Your future pension plan? "Keep calm and work till you drop"

 

This is a motion submitted by my trade union branch to UNISON Greater London Regional Council. Unless we get decent pension provision for all workers, you will indeed have to "work till you drop". UNISON must review and investigate what do do to tackle the future pension poverty of millions of workers. 

"Motion 2 Received from the Housing Associations Branch

Future Pension Provision for Public Service Workers not eligible for Defined Benefit Scheme

This Regional Council/ National Delegate Conference recognises the vital importance of “Defined Benefit” (DB) schemes in providing decent pensions for so many public service workers.

However, many millions of public service workers (including hundreds of thousands of UNISON Members) are not eligible to join such schemes and are instead dependent on Defined Contributions (DC) schemes.

Many (not all) of these DC schemes are grossly inadequate, badly run and expensive with little or no involvement by workers in their Capital stewardship.

UNISON has negotiated with employers in these sectors and have successfully brought about a number of relatively high quality DC schemes for members in recent years.

It is likely that in the near future the Government will allow a new type of Pension scheme to operate in the UK. It is called a “Collective Defined Contribution” (CDC) which is a commonplace scheme elsewhere in Europe and in some cases operates with the assistance and direct involvement of trade unions.

The CWU union strongly supports the establishment of a CDC scheme for Royal Mail.

This Regional Council/National Delegate Conferences requests:-

1. The Regional Council officers/NEC to carry out a review to collate information and identify best practice with regard to current pension provision for workers not eligible for DB schemes. This can also be used for collective bargaining purposes

2. Examine our members attitudes to pensions and identify barriers as well as means to encourage improved take up of existing pension provision

3. Evaluate possible alternatives to current pension provision including CDC and Sectorial DB

4. Report back to Regional Council/NDC in 2023 with recommendations.

(If this motion is passed and then selected as a regional motion to NDC then the wording will be changed appropriately)

For consideration as a regional motion to National Delegate Conference 2022

Should DB schemes open to new members get special treatment? (and why DC schemes are so rubbish in comparison)

I had a name check in this interesting article below. Modern defined benefit (DB) pension schemes are the only way that ordinary working people will be able to enjoy a secure retirement.

I recently pointed out to a journalist that in the DB Local Government Pension scheme (which I am member) employer and employee contributions are currently capped at 19.5% of salary yet this should provide a reasonable pension for staff who have worked for 40 years.

I asked him if he had calculated how much of his salary would have to be invested in a Direct Contribution (DC) pension to match the benefits of the LGPS DB? He said 70% of his salary.

Nuf said?

I really hope that the Labour Party manifesto will include a commitment for a rebirth of Defined Benefit Pension schemes.

"Professional Pensions

at a glance Private sector DB schemes are in decline but 737 remain open to members Some argue running them differently to closed schemes might increase their sustainability. Others worry two sets of regulations could cause problems

With one in eight DB schemes still open to new members, Michael Klimes explores the argument that they should be run differently from closed ones

Defined benefit (DB) schemes have been in decline for a long time, with the past few years seeing an increasing number closing to future accrual or new members.

Sponsoring employers have been shutting schemes due to the higher cost of running them, driven by longevity improvements and sustained low gilt yields.

According to the Pension Protection Fund's Purple Book 2016, 737 or 13% of 5,794 total DB schemes are open to new members as at 31 March 2016. Of these, 6% have active members, which translates into roughly 700,000 people.

However, there is a view that defined contribution (DC) provision is inadequate and that DB schemes provide better income and therefore should remain open.

Some even argue the government should consider introducing regulations to allow open DB schemes to be run differently from closed ones.

Open vs closed

First Actuarial founder Hilary Salt believes open DB schemes should be allowed to be run differently from closed plans for three reasons: Their time horizons are much longer, the employer is not focused on a buyout, and the scheme can benefit from the fungibility of money.

"Because the scheme has no need to sell investments, it can invest in more volatile but long-term, higher return asset classes," she explains. That makes the scheme better returning for all its members - or in other words, it produces pensions more efficiently.

"The difference means an open scheme can invest more productively in long-term assets - in the kind of infrastructure projects we need to rebuild the UK economy and solve the productivity puzzle."

However, the discussion skews the advice given to trustees. "As the general expectation is that employers don't want any risk in their schemes and just want to be rid of them, advice narrows into how to best reduce risk - which basically means buy more bonds and aim for buyout," Salt adds.

Therefore the efficiencies of open DB need to be highlighted carefully as there is a tendency for people to misunderstand them. "Some just say that if a scheme is relying on new members, it's a Ponzi scheme - but this is not the case," she adds.

As pension contributions can be used to pay the benefits of existing pensioners, this makes open DB schemes more efficient than DC, she argues.

"The money to pay for everyone's pensions is being saved but the scheme is simply providing benefits for past, current and future generations of workers in the most efficient way for the employer."

Tower Hamlets local government scheme pensions board member John Gray agrees, arguing the debate about DB has not helped. "There has been a huge error when we discuss the running of DB schemes. Closing DB schemes does not get rid of the deficit as the investment moves away from equities towards bonds. That generates lower returns and employers have to put in more money. Well-run open schemes are safer and more sustainable."

Two sets of regulations?

How might the government encourage open DB schemes to carry on? One way could be for the government to skew tax relief for sponsors that provide some element of DB in their pension offering to employees. However, this is unlikely given the stance of the Treasury.

A second option is to look at some type of compromise between DB and DC such as the risk-sharing proposal at Royal Mail. In March the Communication Workers Union (CWU) called on the postal service to merge its DB and DC members into a risk sharing scheme as a compromise for closing its current career average DB scheme to accrual.

However, Royal Mail argued it would be too risky and has instead offered its employees a cash balance DB scheme.

Pensions Management Institute president Kevin LeGrand is sceptical the government wants to revive DB and thinks there would be many challenges by having different regulations for open and closed schemes.

"It would be very difficult to run two types of regulatory regime, dependent upon this difference in status and I'm not sure where the differences would be," he says.

"For example, one might say that funding approaches should be different, with an open scheme perhaps being allowed to carry a larger funding deficit. But that can be done under the current rules, and in any case might depend more on factors such as the strength of the employer's covenant, rather than the status of the scheme. Any differences of approach might in future be more likely to be driven by political views."

Barnett Waddingham senior consultant Malcolm McLean thinks technical discussions about the management of open DB schemes, closed DB plans and DC arrangements must not leave out members.

He says: "At the end of the day we want the pensions system to work and be most advantageous for their members. At times we [the industry] can lose sight of the point of pensions. Sometimes I go to conferences and the members are not even mentioned, just the mechanisms and logic."

With one in eight DB schemes still open to new members, and as DC is still evolving, it is sensible for the government to consider different regulatory approaches for open schemes. However, any change must be carefully thought through".

Can we have a national DB pension scheme?

My latest article for Professional Pensions. "John Gray says we need to do all we can to preserve defined benefit pension provision in the UK

Those of us who live in the real pension world know it is true but many are in denial. For entirely understandable reasons, the pension industry just don't want to admit it. So come on folks and get out of the pension closet and collectively shout out loud that defined contribution (DC) pension schemes are usually pretty rubbish. 

The government green paper on the future of the defined benefit (DB) schemes may indeed be an attempt to justify the slashing and burning of pension promises but it is also an opportunity to make the opposite case and call for a rebirth of DB.

Recently I was at the TUC annual pension trustee conference and there was a fascinating panel debate on the future of DB. Of course, the 'usual suspects' (progressive actuaries and trade union pension officers) pointed out that there is still a huge (and growing in some sectors) DB pension provision in the UK and that despite some genuine problems these schemes are still affordable, if you ignore the 'Mad Hatter' valuations and assumptions by those who confuse being prudent with being totally risk free.

I raised a question to the panel about why DB schemes are being written off when there is a contribution cap for future accrual in my DB scheme of 19.5% of payroll for employers (13%) and members (6.5%). Meanwhile our new employees, who do not now have such access, need to put away the equivalent of up to 50% of their pay (dream on) to receive similar benefits when they retire in a DC scheme.

Is there an alternative to DB?

Isn't it obvious that DB is better for workers than DC? The half way intermediate schemes such as collective DC or hybrid DB seem to be getting nowhere. There is simply no alternative to DB.

The key note speaker, economist and writer, John Kay gave a brilliant speech at the end of the TUC conference in which he admitted that he thought we had failed the modern generation on pensions. He told us about how recently he had spoken on pensions at a seminar and afterwards a young woman in her 30s had asked his advice about what personal pension she should start? The question had shaken and upset him to think that frankly, his advice should have been it was actually hopeless for her to start anything at her age.

Let's face facts. Many people who will only have access to the state pension and some DC pension savings will not be able to afford to retire. They will have to work until they drop. If they do retire (or get sacked under workplace capability procedures) they face at worse poverty for the rest of their lives and at best certainly nothing like what they would have expected as a standard of living after a lifetime of hard work. Many more will still be dependent on means tested benefits.

We have a national NHS but why don't we have a National DB pension? If the government gave it a Crown promise why can't we open up the Local Government Pension Scheme to everyone including the self-employed? Merge it with the Pension Protection Fund and private DB schemes for efficiencies and economies of scale?

The new government consultation on DB is timely and we should all respond and demand that the government acts to fulfil its duty to its citizens that they will not die in poverty in their old age. The best mechanism to do this is by modern DB schemes open to all, regulated and guaranteed by the state.

John Gray is admitted body union representative at the London Borough of Tower Hamlets Pension Board. He is writing in a personal capacity

The Emperor has no clothes. DC Pensions

From Professional Pensions "John Gray looks at whether current contribution levels across DB and DC are adequate.

As well as being an employee representative on a pension board I am also a UNISON trade union branch secretary with members in more than 140 different private and public service employers.

While I am pleased that auto-enrolment (AE) has taken off so far, I am astonished about how little money employers are paying into pension pots. While many do pay more than the statutory requirement, we see well known national organisations with supposedly good reputations paying peanuts into their employee pension schemes.

If you put in only the AE 8% then you will be retiring and die in relative poverty.

I remember my first ever TUC pension course and our tutor (by coincidence the father of present day PLSA CEO, Joanne Segars) telling us there was an unscientific rule of thumb that you need to put around 20% of your income into a pension for 40 years to retire on half pay and receive a lump sum. Since workers cannot afford to pay 20% into their pension the employer has to pay the greater share.

Whenever I repeat this story to trade union members and to employers they are genuinely horrified at both the amount and the length of time needed.

I know this 20% rule of thumb is full of holes but recently I went to the website of a well-known stakeholder provider and spent a little time on its pension calculator site. While there is no such thing as a perfect projection I was pretty shocked at what I found.

How much?
I used the example of a worker aged 28, who has no existing pension provision on £30,000 per year, who is planning to retire in 40 years' time at age 68. I worked out that not 20% but a ridiculous 50% (£1,250 per month) of their income would have to be invested in order to hopefully retire on half pay (with no lump sum).

If you include the projected state pension you will still have to pay in an eye-watering 34% of your income (£850 per month). So only paying 20% into your pension for 40 years will actually get you nowhere near half pay. If you put in only the AE 8% then you will be retiring and dying in relative poverty.

Okay, maybe under AE a 28-year-old will by that age have some existing pension provision. Current investment assumptions may prove to be wrong and be too pessimistic. Perhaps the industry will really drive down costs and charges (including hidden fees) and increase return. Annuity rates could improve?

Maybe, maybe not. Young people have student loans to pay off, sky high rents to cover while also trying to save for a mortgage. While retention rates for AE have been much higher than expected, this might change. Especially if people think it is not going to be worth it. Current investment assumptions could prove to be optimistic. The industry is very good at side-tracking attempts to cut its charges and annuity rates could remain the same for decades.

So let's keep the 34% of income figure. It's a good enough guess as any I think. Now, should the union be arguing with employers to be paying, say, 26% employer pension contributions and employees 6%? I can imagine the response. Let's face up to it – defined contribution schemes are just not going to deliver.

But why is it some of my union members still belong to a good-quality, national, career average defined benefit schemes, whose total cost for future actuarial is capped at 18.5%? With the employer contribution a maximum of 13%? Surely it's time to think again about modern defined benefit schemes?

John Gray is a London Borough of Tower Hamlets Pension board member though he is writing in a personal capacity

Why most Company Personal Pensions schemes are so rubbish

If you want to know why Defined Contributions (DC) Pension Schemes are usually so rubbish compared to Defined Benefit (DB) then this Office for National Statistics (ONS) chart will give you a clue.

Not only are all non trust based UK DC schemes lacking in governance they all have uncertain outcomes,  are often expensive and most will simply not deliver for their  members.

Many of whom will have to work until they drop or retire into and then die in poverty.

While Defined Benefits schemes are nearly always better for employees than any alternatives, the main reason they are so is employer contribution levels. Average DB employer contribution is 14.2% (not at all an unrealistic level in my view) while in a DC it is an inadequate 6.6%.

I would guess that under auto-enrolment (a good thing but employer contribution only has to be 3%) will bring the average DC contribution level even further down. The current rock bottom annuity rates are making things even worse.

An old rule of thumb in pensions is that you need to be putting in at least 15-20% of your wages (employee and employer contributions combined) for 40 years to aim for a pension of 50% and a lump sum.

"Ambitious Enough? The future of workplace pensions"

On Tuesday morning there was a TUC seminar on workplace pensions Chaired by Assistant General Secretary, Kay Carberry. Keynote speaker was Minister for Pensions, Steve Webb MP.

In his speech he promoted his vision of "Defined Ambition" pensions.  He thinks that Defined Benefit (DB) schemes are finished outside the public sector but wants something better than Defined Contribution (DC). Problem with DB is cost to employer and volatility, while problem with DC is uncertainty and protection against inflation.  He wants something that is not as good as before (DB) but better than the minimum (DC).

He suggested that employers may pay an insurance company (as a company perk) to protect the value of a DC scheme so that on retirement you would get at least your contributions back. He also said that what employers want with pensions is a level playing field and they don't want to pay more than competitors.

My question to him was that are we just trying to reinvent the wheel? If workers need certainty and inflation protection then the answer can only be DB. A reformed DB, where you look for example at employer caps in contribution (I forgot to mention smoothing). In Japan nearly 100% of pension provision is still DB, while in South Korea which has amongst the worlds longest life expectancy they are still opening new DB schemes. If companies want a level playing field then introduce compulsion.

He replied that he did not know why DB was still so prevalent in Japan. He thought it may be related to inflation? He also said it would be inconceivable to get political consensus in the UK  to agree to DB pension compulsion in the UK.

Which I would agree with. It will be impossible to get consensus from right wing Tories. That is why the next Labour Government with a decent Parliamentary majority should just do it, because it is the right (or rather left)  thing to do.

You can check out my twitter comments on the rest of the seminar here 5 February 2013.  There were some really fascinating contributions from other panel members: Doug Taylor from "Which?"; Professor Orla Gough from Westminster Business School and Craig Berry from the TUC.

I had another chance at a question towards the end of the seminar, where I asked the panel that there is a lot of interest currently in "Predistribution" and the concept of a living wage, since the taxpayer should not be spending money subsiding bad employers who pay poverty wages. So should we in the pensions world be also talking about a "living pension" and not allowing bad employers who don't provide one to subsidised by taxpayers as well?

Not sure if I got a full response from Panel. Craig Betty was supportive but  DWP civil servant, Mike le Brun, who took Steve Webb's place on the panel said that individuals will have to take more responsibility for their own pensions. In DB they were passive but in DC they must be active.

Which would seem to contradict his Minister comments about the problem with DC being that individual workers cannot understand the uncertainty and the inflation risk.

If the best brains in the Treasury and the City of London cannot accurately predict return and risk then what chance does Joe Public have with their DC pensions?

another busy day for pensions...but is it a good day for future pensioners?

The government today published its white paper on a new "flat rate" state pension for 2017 currently valued at £144 per week. While this is an improvement on the current £107 per week it is expected that in the long term (2060) most pensioners will lose out.

UNISON reminds everyone that £144 is still below the poverty line and Labour Shadow Pension Minister, Gregg McClymont, points out that there will 16 million pensioners in 2017 who will not benefit from the changes and many "Strivers" will be paying extra in National Insurance Contributions.

What has struck me the most about this proposal is the claims that this increase in basic pension will take many people out of means tested benefits so that they will have the incentive to save for their futures under the new pension auto enrolment regulations.

I'm not too sure. Firstly, many low paid are being excluded from auto enrolment. You will have to earn more than £8,105 per year.

Also contributions from employees (3%) and employers (4%) are also just far too low to build up a decent pension and keep the low paid out of dependency upon means tested benefits. In high rent areas if you retire then you are still likely to be on housing benefit and the disincentive to save continues.

But the biggest issue I think is that defined contribution schemes are just plain inadequate. Even relatively good and inexpensive ones like NEST.

Now maths is not my strongest point and this is very much a back of a fag packet calculation. But I have used the NEST pension calculation website to estimate what a male 22 year old on National Minimum Wage (£6.19 per hour 40 hours a week, £12,875 per year) would get if he retired aged 68 after 46 years of defined contribution contributions.

He would receive a pension worth only £1,990 per year (£38 per week) and a lump sum of £22,600. (This is for a pension guaranteed for 10 years after retirement, with spouse pension and pension rises in line with inflation). These figures are subject to stock market performance, annuity rates and not guaranteed.

If he was in a traditional defined benefit 1/80th scheme he would get at least £6,437 per year (£123 per week) and a lump sum of £38,625. He would also get life insurance and ill-health cover. He and his employer would of course have to pay more but the pension would be guaranteed.

Question: So how will you attract the low paid to save for 46 years when they can only expect (fingers crossed) to get a pension worth £38 per week?
Answer: You can't. They are not stupid, they won't do it. Get rid of low pay. Turn a minimum wage into a living wage and auto enrol all workers into a decent defined benefit scheme. Job done. 

Bond Bubble Burst

This could be yet another disaster for ordinary savers thanks to our dysfunctional financial services industry.

This morning I read a newsletter from a respected firm of pension solicitors highlighting 10 key issues for 2013.

Number 8 was to beware of a possible "bond bubble". The concern is that bond prices (government loans called gilts or other traded loans to companies) are so over priced that soon there will be a "crash". Gilt yields (due to high prices) are currently at a 200 year low.

If this happens then the value of personal pensions for many people approaching retirement who will tend to have most of their money invested in bonds will be devastating.

It's complicated because a fall in gilt prices should mean an improvement in annuity rates (the amount of money you will actually get each year if you retire on a personal pension) and will also help out defined benefit schemes. But there is no doubt that if you are in a standard "lifestyle" personal pension plan (which most people in "normal" times should be in) then in the 5 years before your retirement most of your money will be moved away from long term savings in equities and into bonds and cash. A predicted 40% crash in bonds would be a disaster.

As always, wealthy or financially sophisticated investors will avoid the risk. Joe Public will not. This is another reason why individual defined contribution (or defined ambition) schemes are not the answer to the pension problem in this country.

With individual defined contribution schemes (personal pensions in all their shapes and sizes) ordinary individual savers have to take all the risk over their pension fund asset allocation and investment strategy. That is not their job. That is not what they are good at in life. Their funds are usually far too small to be able to afford the expert and ongoing advice needed.

While most trust based collective defined contribution schemes can afford this advice and will hopefully will put in place measures to protect members I cannot see how they will be able to fully protect those about to retire if bond prices collapse. The "market" is not the answer to everything.

The answer is of course decent modern defined benefits schemes for all.

Some good news on housing workers pensions! But...

This is a rather rare title for a post on pensions! However, well done to Housing Association Plymouth Community Homes who have decided to keep their 60th Defined Benefit scheme with the Social Housing Pension Scheme (SHPS) open and absorb the extra costs imposed by the SHPS.

There are still some changes which UNISON members are unhappy about such as move from RPI to CPI and the charging of pension contributions while on maternity leave.  But PCH obviously care about their workforce and take their duties as a responsible employer seriously.

They do not want their employees to retire and die in poverty. Unlike some it would seem who not only want to close their Defined benefit (DB) scheme but replace it with a pittance of a Defined Contribution (DC) scheme. In a recent report by a leading Actuary, in a DC scheme you would need to invest 22.9% of your pay to get 53% of final salary pension (twice as much as a DB scheme!).

Yet some employers are proposing to pay only the new national legal minimum of 3%. This will mean as mentioned above that their staff will not only die in relative poverty in their old age but the taxpayer will also have to subsidise their pensions to keep them out of absolute poverty.

SHPS and its parent organisation, the Pension Trust, tries to justify increases in contributions by pointing to a supposed rise in "liabilities" (the future expected costs of giving members pensions) yet even the Pension Minster, Steve Webb MP, recognises that the way we calculate pension costs is practically meaningless and is destroying perfectly good pensions schemes.  He has committed to change.

Employers need to get a grip and challenge the assumptions being made and the contributions they or their employees are being expected to make. I am not at all convinced that this contribution rate increase requirement by the SHPS is at all necessary and I hope they seriously take this up with them.

I am dismayed that SHPS are not engaging with UNISON's proposals about practical alternatives to contribution rises. The Local Government Pension Scheme is very similar to many SHPF schemes but has been able to avoid increases in contributions for most of its members by working in a partnership with the trade unions and employers. This has brought about radical but thoughtful and intelligent change.

There was no consultation with the trade unions whatsoever by the SHPS before they decided what they wanted to do and no interest shown in any real partnership working.

One of the irony of ironies is that a major reason why some SHPS employers want to close their scheme to existing members is because they have closed it to new members joining. Quite rightly pensions contributions have to be increased if a fund is closed. SHPS have to charge more (I think 3%) since in any closed scheme the investment returns will be lower and the costs higher. This is just madness. Why condemn your staff to a miserable old age for nothing? Cut costs and re-open those schemes to new blood.

Closing your DB scheme does not make it any better, it does not get rid of any deficit (real or otherwise) it just makes it worse. Increase contributions on your staff by too much and they will just walk away from it, the scheme will then fail and the employer will be left to carry the can.

UNISON has recently published an excellent guide on the proposed changes to SHPS and later this week we are holding a national training event in London on it. 

"Pensions people can trust"

This post is just a little bit late but I was away when the Labour Party and Ed Miliband launched its policy review document on pensions last

month and I am still catching up on things.

I thought the review was pretty good and was pleased that the Party recognise that not only are pension policy holders being ripped off in charges but one of the most obvious solutions is that all pension schemes should be "Trustee based". 

This would mean that schemes are looked after by representatives of the beneficiaries who have a financial stake in their scheme and therefore a real fiduciary duty to their fellow pension scheme members. Most company defined contribution schemes are run by pension or insurance companies and have no trustee representation at all. These schemes tend to be run in the interests of private companies and their shareholders, not pension policy holders. No wonder in so many cases they get such a rotten deal.

The review was not perfect. I was disappointed that the review did not mention any positive measures to protect and encourage defined benefit schemes. It did put its finger on the major pension challenge. The complete and utter lack of trust by the British public in our financial institutions.  Who would blame them for this? Since all the evidence is that for at least the last 30 years most have at best ripped off and at worse defrauded savers. The latest loan protection mis-selling scandals and LIBOR fixing shows it is still going on. Things need to change. 

LGPS 2014: The Future of the British Sovereign Wealth Fund?

Yesterday there was an announcement that the trade unions, the LGA and the Government had come to an agreement on new proposals for the Local Government Pension Scheme (LGPS) in 2014.

If you are not in the LGPS bear with me, since this is an important issue.  The LGPS has assets worth over £145 billion and collectively is the biggest pension fund in the UK and the 4th biggest in the world. It is a major shareholder in Britain and the world economy. Arguably it is the British equivalent of a Sovereign wealth fund. Over 4 million Brits are members of the LGPS with 1.6 million active members in England and Wales alone.

Why I understand that there are a lot of people who have genuine fears and concerns about these proposals there is also a lot of old nonsense being put out by the usual suspects who should know better and are just scaremongering.

I'll use a comment in a post I did yesterday from the "we don't care how good this offer is we just want to go on strike all the time to bring about the revolution" brigade to illustrate what I think about the proposals.

I will say this is early days and once we have been properly briefed on the offer and given time for it to sink in I will probably post again. Please note that is my own summary and interpretation and no-ones else's.

Q. Are we paying more?
A. No, average contribution remains at 6.5% gross.  Some part time workers may well pay even less. Those earning under £43,000 per year will pay the same while those who earn more will pay a little extra but after tax relief even those who earn over £150,000 will still pay less than 7% net. At long last if you have financial problems you will be able to reduce your contributions by 50% (with reduced benefits) until things improve rather than just pulling out.

Q. Are we getting less out?
A. No, the majority of members will get more out of LGPS 2014 than the deal in 2008. The accrual rates is far better. It is also a more valuable and better scheme. Especially for the low paid. For too long we have allowed a small number of very high earners to milk our pension scheme for their own benefit. For the first time workers will also build their pensions on non contractual overtime and allowances. A real improvement to those who rely on such money.

Q. Are we working longer?
A. Yes, in line with state pension age. Many of our members earn so little that they will not be able to retire without the state pension in any case. Remember we're living longer. It's supposed to be a good thing. In return we get a world class guaranteed pension scheme. There is also a 10 year protection. There also may be scope for members to "downsize" when they are older into less stressful and demanding jobs under Career Average than Final Salary

In many ways this is unfinished business from 2008. There was no agreement reached back then about future cost sharing over longevity. It had to be sorted sooner or later. Final Salary was always unfair to the mass of our members when compared with a decent Career Average scheme. We also never could agree with the need to modernise, get meaningful member representation and consider merger to deal with the 101 different ways that the financial services industry rips us off (i.e 101 separate LGPS funds).

What I really hope is that LGPS 2014 can be an an affordable and sustainable model for pension schemes that the millions and millions of public and private sector workers who don't have any access to such security in old age.  If we don't get such a model established in the private sector then the public sector schemes will always remain vulnerable.

What happens next? We ballot. Let the members decide.

Why you should join your company pension scheme NOW! (it's use it or lose it)

It's a no brainer actually (apologies to Homer Simpson whose scan in on right does show he has a brain although it is very small and rarely used e.g tax payers alliance supporter). There are millions and millions of workers in the UK who have access to a pension provided by their employer but they have not joined the scheme.

Sometimes it is because the scheme is pretty rubbish and that there are no real incentives given by the employer to encourage their staff to join. Yet often this is not the case and workers are losing vast amounts of money each year by not joining.

The 25% apparently eligible to join the Local Government Pension Scheme (LGPS) who haven't are losing at least 14% of their wages each year. They also even pay more income tax and national insurance.

However, the real people at risk from not joining their scheme NOW are in defined contribution (aka Group stakeholder or personal pensions) company schemes whose employers pay reasonable contributions if the members also pay something into it. Many of scheme are pretty good. Not as good as say the LGPS but nothing to turn your nose up upon. Decent employers know that any decent pension will cost a lot of money and they have to play their part in providing funding.

The risk ironically to these "decent" schemes is the introduction of pension autro enrolement next year. Enrolement is a "good" thing and will mean that nearly all workers in the UK for the first time will be automatically put into a pension scheme.  What is worrying some employers is that this may mean that the total bill for pensions will rise. If auto enrolling works (and there is some doubt) then instead of 25% of the workforce being in the company pension scheme this may rise to say 50% or more. Potentially doubling the pension payroll.

What many people fear is that some companies (including ones that use to provide non contributory final salary schemes free to all their employees in a more enlightened age) are planning to either slash and burn existing contribution rates or introduce 2nd tier pensions for employees who have not joined the existing scheme. We need to oppose all attempts to reduce contributions. The more in the scheme the more difficult it will be to cut it.

This is a call to arms to all union reps to "encourage" (we cannot give specific individual financial advice) our members to consider joining their scheme.  If they don't, it may not be around much longer. Use it or lose it.

AMNT Presentation to Irish Banking Trade Association

Yesterday, during a visit to their headquarters in Dublin, Janice Turner, the Joint Chair of the Association of Member Nominated Trustees (AMNT) and I gave a 45 minute presentation to the Irish Bank Officials Association (IBOA) National Executive Committee.

The IBOA represents 22,000 finance workers in the Republic and Northern Ireland. It has has been very supportive of the AMNT and its lay pension trustees NEC have played a key role in our growth. Their members are in Defined Benefit (DB) and Defined Contribution (DC) pensions schemes.

Being finance workers they are acutely aware of the value of pensions and the threats that all their schemes currently face. The employer pension "promise" and "covenant" is under attack. For example the UK regulated Banks suffer from unnecessary and damaging accounting standards while in the Republic there is also no equivalent of the Pension Protection Fund (PPF).  This needs to be challenged.

I think that the IBOA committee members and officers appreciate that the AMNT is the only organisation that is run solely by member nominated pension trustees who want to not only defend and promote DB but also want to improve all DC schemes as well.

At some point in the future it would make sense to try and organise local pension training and briefings by the AMNT outside London. 

Many thanks to the IBOA for the warm welcome and hospitality they showed to us during our visit.

Battling for defined benefit pensions

 From May/June Engaged Investor John Gray of the Association of Member Nominated Trustees (AMNT) on the battle to keep defined benefit alive.

The inaugural AGM of the Association of Member Nominated Trustees (AMNT) was held last month in Pension Corporation’s headquarters. Over 40 MNTs attended (out of 150 members recruited so far) who safeguard between them over £50bn of pension assets. What really enthused me about this meeting was the work group I attended on defined benefit (DB) schemes. After so much negative and misinformed mudslinging at DB schemes in recent years, it was a real tonic to be in a room full of people who were genuinely positive and supportive about DB.

Yes, things need to change. Yes, we need to look again at structural problems caused by inappropriate accounting standards and unnecessary regulation. Yes, it is “bleeding obvious” that schemes should merge whenever practical and cut costs. However the message should be shouted out loudly and clearly at every opportunity that DB schemes are still affordable and can offer massive benefits to both employer and employees. They should, in my view, be the bedrock of everyone’s pension’s provision. While trust-based defined contribution (DC) schemes have an important role to play, the vast majority of ordinary working people are desperate to seek financial certainty in their old age. Employers need to not only offer a package that will attract and retain staff but they also have a duty to try and ensure that their staff do not end their lives in poverty.


We cannot let the huge mistakes made decades ago in the funding and actuarial assumptions of DB schemes distract us from the little said facts that future contribution projections in DB schemes have barely altered from traditional assumptions. With some necessary updating they are as affordable now as they have ever been.

I was the only public sector representative in the group and the others were from the private sector. They were very concerned at the obnoxious and incredibly misleading so-called “gold plating” attacks made by some on public sector DB schemes. There are still millions of private sector employees in DB schemes and all these attacks on public schemes do is to undermine decent pension provision in the private sector and encourage a race to the gutter.

"The message should be shouted out loudly and clearly at every opportunaity that DB schemes are still affordable"

  

When I reported back to the main meeting on our workshop I was pleased that it agreed that such is the importance of the defined benefit schemes that there should be a dedicated Working Group (which I will Chair) on not just defending DB schemes but battling for DB.We will be championing and promoting what use to be considered not so long ago as the “Crown Jewels” of the British occupational pension provision. www.amnt.org