Forum Brief: Pensions

Solvent firms which close final salary schemes will be forced to compensate workers, the government has announced.

Pensions secretary Andrew Smith told MPs on Wednesday that he aims to halt the crisis in the pensions industry by ordering companies to offer greater safeguards ensuring employees are "treated fairly".

"We need to act to ensure a pension promise made by employers is a pension promise kept by employers," he said.

And a new Pensions Protection Fund will be established to safeguard workers' funds.

The government also announced an intended rise in the pension age in the public sector to 65

Forum Response: Association of British Insurers

Mary Francis, director general of the ABI, said: "We support the objective of this scheme. If set up properly, it could provide reassurance and boost confidence in pension saving.

"But a number of important practical questions remain. Will it really be viable without an ultimate guarantee from the government? More fundamentally, can confidence in pensions be restored without more incentives to encourage both employers and individual savers?

"We believe public funds will have to be committed in one way or another if a pensions crisis in this country is to be avoided. Unless the government takes the bull by the horns, the pensions green paper is in danger of achieving very little."

Forum Response: Help the Aged

Mervyn Kohler, head of public affairs for Help the Aged, told ePolitix.com: "Confidence in pensions has collapsed. The government persists with a meagre state pension supplemented by means tested benefits, and now moves to restore certainty to private schemes by chopping the mandatory indexation requirement. Some protection. The onus and risk of social protection in older age is being transferred remorselessly to the individual.

"There is a whiff of panic about the centrepiece of the announcement. It trades off improved protection for a few with decreased protection for many and increased the risk of poverty in old age. More measures to demonstrate that schemes are properly funded, even if they were painful to employers and employees, would be a more honest approach.

"The Green Paper proposed some modest changes around the periphery of the pensions issues and some of these are now being driven forward. But, the big question about a realistic way of financing old age, has been missed."

Forum Response: Age Concern

Gordon Lishman, director general of Age Concern, told ePolitix.com: "Age Concern welcomes the government's announcement to set up a safety net to protect people when pensions schemes fail to deliver. This will make a real difference in the future for thousands of people who would otherwise have been let down by the system.

"This new scheme is an important first step but Age Concern urges the government to give the whole pensions system an overhaul. In particular we are calling on the government to address the poverty faced by thousands of women pensioners."

Forum Response: Institute of Directors

Derek Brownlee, pensions executive at the IoD, told ePolitix.com: "We welcome the principle of the pensions protection fund, though the devil will be in the detail. In particular, if the burden of financing the fund falls on employers, some may be forced to close their final salary schemes altogether.

"We also welcome the proposed changes to the priority order of pension assets where pension schemes cannot meet their full liabilities.

"However, though at first glance the bulk of today's announcements are welcome, we still don't see any real progress on making it more attractive to save into a pension - and that is the core of the pensions crisis which must be addressed."

Forum Response: National Consumer Council

Ed Mayo, NCC chief executive, said: "A safety net for pension schemes threatened by company insolvency was one of the reforms NCC called for in its response to the pensions green paper. Pensions are becoming a near-death experience for consumers - this is at least some better news from the government.

"Reducing inflation-proofing on company pensions will be a problem if inflation rises. Making company schemes more affordable for employers in this way, reduces the risk of schemes closing, so could be a price worth paying. But the impact of this change could make decisions about joining a company scheme much more complex.

"Easy access to clear information and advice on saving and pensions will be even more urgent as a result of today's action on occupational pensions."

Forum Response: Consumers' Association

Sheila McKechnie, Director, Consumers' Association said: "If the government thinks the action it has proposed today solves the pension problem then it either doesn't understand what the crisis is or it lacks the political courage to deal with it.

"Many changes apply only to current employer schemes and the simple issue that we are not saving enough is being side-stepped.

"The government has completely bottled out of facing up to the problems in the private pensions sector, which they are expecting current generations to rely on to fund their retirement. The industry cannot deliver a viable model for individual pensions. It is inefficient, expensive and contemptuous of its customers.

"Why should people save to keep the financial services industry in the style to which they have become accustomed? They should not and they will not."

Forum Response: The Work Foundation

A spokesman for the Work Foundation, said: "It is essential for the government to underwrite the Pensions Protection Fund if this this insurance scheme is to be fully reliable. The timetable for its introduction is leisurely. The government proposes temporary regulations until the Fund is established. These must not become an excuse for delay in setting up the Fund. On the face of it, the proposals for priorities look reasonable, but we need to know more about the Fund to see if this is so.

"Where a solvent employer winds up a scheme, trustees will be placed in an impossible position, if employers can limit their responsibilities by claiming, as the the government says, that the company would be put at risk.

"We welcome the decisions to ensure that trustees are trained in their responsibilities; the requirement on employers to consult before making changes to schemes and on providing better information to employees about their pensions; and on not making changes on survivors' benefits.

"The proposal that in transfers of undertakings employers must match employee contributions up to six per cent in a stakeholder pension will not, in many cases, amount to equivalent provision.

"We support the decision not to require compulsory membership of company pension schemes. This should only be considered with a fully government underwritten Compensation Fund.

"In cutting inflation-proofing to 2.5 epr cent it is dangerous for the government to assume that we will never see high inflation again. If the level is cut, the payments should be averaged out over several years because pensioners do not recover from a sudden hike in inflation."

FDA

Jonathan Baume, general secretary of the FDA, said: "We are saddened that the government appears in its statement to give greater weight to the views of the Institute of Directors - many of whose members are responsible for the current pensions crisis - rather than listening to the trade unions who represent literally millions of their own employees.

"The FDA will be joining with unions across the public sector to resist this change in the public sector retirement age."

Forum Response: Counsel and Care

Martin Green, chief executive of Counsel and Care, told ePolitix.com: "If the government's approach to pensions is going to work, ministers have got to put into place safeguards so that firms cannot raid pension schemes.

"They must also ensure that people have a guaranteed income in retirement."