Pensions Bill briefing
Pensions Bill
Report Stage Briefing HC
May 2004
The Pensions Bill 2004 introduced some important and welcome reforms to pensions law, including the introduction of the pensions protection fund and the right to be consulted on changes to pension schemes. The Pensions Commission led by Adair Turner and due to report next year is addressing wider and long-term concerns and the TUC is actively participating in that process. Therefore this briefing provides an update on progress to date including measures, which we understand would be tabled during the progress of the Bill through Parliament. The TUC raised a number of specific issues at Second Reading these included the Pension Protection Fund, employees’ representation rights, increased protection for pension in private-to-private TUPE transfers and new requirements for member nominated trustees.
The Pensions Regulator
In Part 1 The Pensions Regulator, will replace the Occupational pensions regulatory authority (OPRA). This will take over Opra's responsibility for regulation of occupational pensions, and specific functions of personal pensions and stakeholder pensions. Through this Bill the new Regulator will assume a number of new functions including a new tribunal - The Pensions Regulator Tribunal- which will be established to handle references from determinations made by the Regulator. There will be a new criminal offence for failing to attend on a witness summons before the Pensions Regulator Tribunal. The TUC is very much in favour of a new pro-active pensions regulator. We support moves for the new regulator to focus on fraud, bad governance and poor administration. A more risk-focused approach will help build scheme members’ confidence at a crucial time. We believe the new regulator should be able to give support and advice to those seeking to achieve compliance as laid out in the five year review of the Occupational Pensions Regulatory Authority (OPRA), and provide guidance to trustees, pension professionals and employers on regulatory matters. The TUC believes that the board of the new regulator should have a seat for representatives of members, as is currently the case with OPRA.
The Pension Protection Fund
Part 2 introduces the new Pension Protection Fund (PPF); to provide compensation for members of defined benefit (normally final salary) and hybrid occupational pension schemes in the event of the scheme's sponsoring employer going insolvent, leaving the pension scheme with insufficient funds to pay its members the pensions they were expecting. The TUC fully supports the introduction of a pension protection fund (PPF) to protect members if their employer becomes insolvent. We have been campaigning for a PPF for many years, and believe it will give scheme members greater confidence in their company pensions. The TUC believes that the board of the PPF should have a seat for a representative of members.
The TUC very much welcomes the amendment tabled by the Secretary of State for Work and Pensions to help those workers who through no fault of their own lost their pension rights. The amendment to part 2 of the pensions bill will establish a fund with £400 million paid in over 20 years to help those workers who lost their pension rights. Further consideration will also be given to the possibility of further contributions from industry.
The TUC believes that the trade union movement must be fully consulted on the details of the fund’s operation, and in any reviews that follow.
Scheme-specific funding
Part 3 of the Bill replaces the Minimum Funding Requirement (MFR) for defined benefit occupational schemes with scheme-specific funding requirements allowing schemes greater flexibility in developing funding strategies appropriate to their circumstances. The TUC has a member on the scheme funding panel.
Price Indexation Cap
Part 5 of the Bill deals with some of the key areas of concern for the TUC including changes to the rules on limited price indexation for occupational and personal pensions, reducing the cap from five per cent to 2.5 per cent. The TUC is concerned that the government’s plan to reduce the protection against inflation for workers in private sector schemes from five per cent to two and a half will have serious consequences if inflation increases beyond the current estimates of 2.5%, it may also lead to elderly women with inadequate protection against inflation as they tend to live longer than men.
Requirement to consult
Partnership between, employers, trade unions and employees is essential to ensure better pensions in the workplace The clause on the requirement to consult was tabled by government at committee stage. The TUC welcomes the proposed requirement for employers to consult their employees or employees’ representatives, or both, before making changes to the pension scheme. We believe that employee consultation must be implemented immediately so that trade unions can make sure that their members’ pensions are protected against employers making detrimental changes to the pension scheme.
To ensure that consultation is meaningful, the TUC recommends that consultation should be with an independent trade union recognised for the purposes of collective bargaining or with representatives elected under the EU Information and Consultation Directive (to be transposed in the UK by 2005). Furthermore, consultation should be ' with a view to reaching agreement', within a specified time period. When implementing consultation rights the TUC believes that no employer, regardless of size, should be excluded from the requirements and that sanctions should be in place for non-compliance with the consultation procedure. Maintaining trust is an important element in encouraging a high performance workplace. Involving employees/employee representatives in decision making and giving them a real influence over decisions leads to higher morale and to staff being more likely to support workplace change. The TUC must be consulted on the regulations requiring all employers to consult with members on changes to pensions .
TUPE transfers
Part 5 of the Bill also introduces a minimum level of pension protection for employees involved in TUPE transfers where they had access to an occupational pension scheme pre-transfer. The TUC welcomes the fact that the Bill will impose an obligation on employers to match employee contributions up to a level of 6% in cases of TUPE transfers within the private sector. Whilst this is a vast improvement on the current protection, this offers very limited protection for members of final salary schemes. Proposals in the Bill specify that the employer must offer either an occupational pension scheme or a stakeholder scheme.We propose that the new employer should provide a pension scheme of equal quality to the member’s old employer.A business transfer must not be an excuse to reduce employee’s pension rights. It is important to ensure that no pension scheme member faces inadequate pension protection as a result of a TUPE transfer. The TUC support the amendment to clause 229 , which is a simple requirement that the receiving employer should provide benefits that are broadly comparable, or of broadly equal value, to the benefits provided by the original scheme.
Trustee Boards
Part 5 also introduces a requirement for trustee boards to have at least 1/3 member nominated trustees and for all trustees to have appropriate knowledge for the performance of their duties, in response to the recommendations from the Myners Report on institutional investment . The TUC believes that all trustee boards should have at least 50% member nominated trustees. One of the key objectives of the Pensions Bill is to ensure that workplace pensions are more secure and to increase member confidence.
The trade union movement has always regarded pensions as deferred pay, and as such believe that members should have a direct say on how pension funds are managed. To ensure this is the case and that members have greater confidence in their employers pension scheme the TUC believes that all trustee boards should have at least 50% member nominated trustees. Many pension schemes already operate on this basis.. The TUC supports the amendment to the Pensions Bill which will require all trustee boards to have to 50:50 member nominated trustees. Raising the proportion of trustees will facilitate a wider basis of representation of members on the trust board. It will reduce the likelihood of their being just a single member trustee and it will provide more scope to incorporate pensioner trustees or trustees from different parts of a company.
State Retirement Pension
Part 6 deals with individuals deferring their State Retirement Pension. Bringing forward an increase in increments originally planned for 2010. Whilst the TUC welcomes greater flexibility we are deeply concerned by the lack of proposals to deal with women’s poverty in retirement. The TUC believe that the number of qualifying years required to receive a full basic state pension should be reduced.
Stay Updated
Want to hear about our latest news and blogs?
Sign up now to get it straight to your inbox