THE ASSOCIATION OF
ELECTRICITY SUPPLY PENSIONERS
Summary Comments on Working and Saving for
Retirement
White Paper on Pensions
1 The Association welcomes many of the proposals in the White
Paper. However the Association feels
that the aims and objectives of the Government, mainly directed at cost saving,
will do little to encourage saving at the right level for adequate pension
provision in years to come.
2 To achieve something like the benefits offered in the best
public and private defined benefit schemes requires a funding rate across the
employees working life of something around 18-20% of salary through the working
period. Pickering suggested that a
minimum of 15% was required. The proposals in the White Paper come nowhere near
to encouraging this level of investment into pension provision.
3 The Association deplores the proposal to set the mandatory
level of inflation indexing at 2.5% rather than the existing 5%. Whilst the Government’s stated aim is to
keep inflation below this level, it currently stands at 2.9% and historic
inflation rates have greatly exceeded 2.5%.
By setting a cap Government will effectively erode the value of all
private pensions. It must be clear that
this is minimum maximum and there will nothing in law to prevent a fund paying
higher than 2.5% should the RPI be above that level.
4 The Association welcomes the statement that the Government
will not follow the Pickering recommendation and will expect pension schemes to
provide for survivor’s benefits.
5 The decision to legislate for a Pensions Protection Fund,
whilst superficially extremely attractive, will be another tax on well-run
schemes. The protection benefit of 90%
of earned benefits for employed members will, if a frozen benefit, be far less
at retirement than the expected benefit if the employee had stayed in
employment and continued to earn at that level and contribute to a scheme. The Government should require the transfers
of the protected benefit into another live scheme run by a subsequent employer.
6 The Association believes that the salary level proposed for
protection ( £40,000 - £60,000) is far too low. This is the salary range which covers teachers with
responsibility allowances, police officers and many engineers and junior
managers in the energy industries. It
is not the salary range of senior executives.
7 Members of the Association were historically associated
with a pension scheme and employment contract which required compulsory
membership of the pension scheme. It is
disappointing that Government proposes that pension provision remain voluntary
as all the evidence points to a significant reluctance in the general
population to make adequate pension provision.
8 Given the experience of its members in the courts the
Association is disappointed that it will still not be a requirement on
regulators and the ombudsman to defend their decisions on behalf of complainants
to the courts if that decision is challenged by employers.
9 The Association deprecates the unwillingness of the
Government to legislate on the ownership of pension funds. Pensions are deferred salary and therefore the
pension fund should be the property of the fund members – pensioners and
employed members. No monies of a scheme
should be payable to an employer and employers should not be able to apply
monies in a scheme for purposes other for that of the scheme.
10 The Association believes that the actuarial profession has
done a great disservice to pensions in recent years by changing the basis of
valuing liabilities. This methodology
was introduced at a time when asset values fell sharply and has therefore exacerbated
the apparent deficiencies in pension funds.
The Association calls on the Government to establish an independent
methodology for valuing the liabilities of pension funds.
11 The Association believes that all pension funds should have
equal voting representation by employers on the one hand and employees and
pensioners on the other. There should
be a minimum on one employed member trustee and one pensioner member trustee on
all pension trust boards (should such stand for office). All pension trusts should have an
independent chairman.