Chapter 6 - Pensions

Chapter 6 PENSIONS

Introduction

Throughout the year, the General Council have continued to promote the need for workers to belong to good occupational pension schemes and have campaigned for better and safer schemes and improved access to them.

The 1996 Congress called upon the General Council to undertake a review of second tier pension provision in the UK with the aim of ensuring that all working people have the right to a high quality, collective pension in addition to their basic state pensions, regardless of their employment status. A Working Group was established to explore the issues raised in the Congress resolution. This Group is chaired by General Council member Tony Young and comprises union pensions officers. The Group's interim report is submitted to Congress as an annex to this chapter.

Further details of how the General Council's pensions work has progressed is outlined in the following paragraphs.

6.1 1995 Pensions Act

The main provisions of the 1995 Pensions Act came into force on 6 April 1997. The TUC recognises that, whilst the Act provides some much needed protection for the 10m members of occupational pension funds, it does not go far enough. The TUC wanted to see a tough package of reforms that would insulate pension scheme members from fraud and abuse once and for all. As it stands, the Act is far too weak with the overall result that determined employers could still use scheme members' pension fund monies for their own ends. The TUC has continued to comment on draft regulations which flesh out the Act.

Despite being early days, the TUC has been monitoring the operation of the Pensions Act very closely. Particular concerns have arisen over the operation of the procedures for selecting and electing member-nominated trustees (MNTs). The TUC has expressed concern that the legislation, as currently drawn up, gives too much power to employers by allowing employers to have the first say in determining how trust boards should be constituted. This could include proposing that there should be no MNTs and that ballots should not be conducted in secret. This has, indeed, proved to be the case in practice. In a number of cases the number of MNTs on trust boards has actually been reduced as a direct result of the Pensions Act whilst in other cases scheme members have felt that the democratic process for selecting and electing MNTs has not been adhered to. This is quite the opposite of what was intended by the new legislation.

The TUC is preparing a dossier of Pensions Act-related problems and will be presenting these to the Minister responsible for pensions, John Denham, with a view to securing tougher protection for the members of occupational pension schemes.

A continuing priority for the TUC has been to inform scheme members, member- nominated trustees and negotiators about the Act. In November, the TUC held a conference, The Future for Pensions: pensions after the Pensions Act, which was attended by over 400 delegates and which was addressed by a range of expert speakers including the then Shadow Social security Secretary Harriet Harman. This conference explained how the Pensions Act would work in practice and looked a number of outstanding issues, including pensions and divorce. To co-incide with this event, a The 1995 Pensions Act - a TUC Guide was published. A series of regional pensions seminars have also been held, and these are explained below.

Prior to the introduction of the Pensions Act, the TUC published a Model Statement of investment Principles, Model Internal Disputes Procedure, and Pensions Act Checklist for Member-Nominated Trustees the purpose of which are to assist trustees and negotiators can reach the best deal for their members when putting the Act in to practice.

The new occupational pensions watchdog, the Occupational Pensions Regulatory Authority (OPRA), assumed its full powers on April 6 1997. OPRA's function is to enforce compliance with the Pensions Act. It has the power to investigate reports of non-compliance and punish those who do not comply with the Act, which can include fines. Joanne Segars, TUC Pensions Officer, continues as the TUC's nominee on the new Authority. The TUC has continued to support the development of the new Authority. In October, the TUC Pensions Specialists Group met the Chairman of OPRA, John Hayes CBE, and discussed OPRA's role and remit. In May, the Pensions Specialists Group visited OPRA's offices in Brighton to meet key OPRA staff and to see how OPRA conducts its operations. The second strand in the new occupational pensions regulatory structure is the Pensions Compensation Board (PCB), the function of which is to compensate scheme members where their pension fund is the subject of pension fund fraud. Clive Brooke continues as the TUC's nominee on the PCB. In June, Dr Julian Farrand QC, Chair of the PCB, contributed an article to the TUC Pensions Briefing explaining how the PCB works and under which criteria the PCB would make payments to scheme members.

6.2Trade Union Specialists Group

Meetings of the TUC Pensions Specialists Group, comprising union pensions officers, continue to be convened. This Group considers latest developments in occupational pensions of concern to union members as well as matters of a technical nature. Matters considered by the Group during the course of this Congress year have included the Pensions Act and its accompanying regulations; pensions and divorce; and personal pension mis-selling.

The TUPS Group has continued to remain in close contact with others in the pensions industry, and members of the group have continued to attend meetings of the National Association of Pension Funds Trade Union Liaison Forum.

6.3Personal Pensions

The TUC remains concerned at the scandal concerning the mis-selling of personal pensions, described by the TUC as one of the greatest financial scandals of all time. Of greatest concern is the fact that four years after the problem was first revealed, only a fraction of the potential 1.5 million victims of mis-selling have received compensation. The TUC has been critical of the apparent lack of concern amongst many pensions providers to complete the review of mis-selling ordered by the industry watchdogs (the Securities and Investment Board and Personal Investment Authority) and to award compensation where it is due.

In July 1996, the TUC published Justice Delayed which documented the delays the victims of mis-selling were facing in receiving compensation. By December 1996, all priority cases in the SIB/PIA review should have been completed. Sceptical that this was the case, the TUC contacted the mis-selling cases cited in the July report to ascertain whether they had received the compensation due. The vast majority were still waiting for compensation. These further delays, along with the continued inaction of the pensions companies and regulatory authorities were documented in a second report, Still No Justice, published on 31 December. The TUC has continued to help the victims of mis-selling by distributing its free information and advice pack,

In October, the General Secretary met Sir Andrew Large, then Chairman of the SIB. The TUC was critical of the inaction by pensions companies to conclude the review and of the apparent unwillingness by the regulatory authorities to impose penalties on those they regulate. The TUC also learned of the SIB's plans for a new, streamlined, approach to resolving the review. Whilst welcoming the new approach, the TUC said it wanted to see tight new deadlines for concluding the review set by the regulators and penalties imposed on those firms which failed to meet the target dates. The TUC has co-operated with the SIB's attempts to expedite the mis-selling scandal. Member trustees have been encouraged to allow mis-sold personal pensions holders to be readmitted into schemes and the TUC and personal pensions holders have been encouraged to co-operate with the Review and respond to request for information from their pensions providers. The TUC has continued to maintain close links with the SIB and has distributed leaflets to trustees and personal pensions holders about personal pensions mis-selling.

In contrast, the TUC has welcomed the tough action taken, within days of taking office, by Helen Liddell, Economic Secretary to the Treasury. This has included "naming and shaming" those companies which fail to compensate mis-selling victims.

6.4Public Sector Pensions

The TUC has continued to convene meetings of the Public Service Pensions Group (PSPG) to consider issues of concern to members of public service pension schemes. The PSPG's primary focus has been the continuing campaign to end the discrimination which prevents non-married adult partners from receiving the scheme member's benefits when they die. Unions have distributed a joint TUC/Stonewall leaflet, produced in September last year. In July, unions sought a meeting with Treasury civil servants with responsibility for public sector schemes to press upon

them the need for a change in the law in this area and the Group is also considering the implications of the Grant v SW Trains case for occupational pension benefits.

6.5Winning pensions for part-time workers

It was reported to the 1996 Congress that following a ruling in the European Court of Justice (ECJ) in 1994, the TUC had co-ordinated thousands of applications to industrial tribunals on behalf of part time workers who had been illegally denied access to company pension schemes. At a Directions hearing in 1995, the Birmingham Industrial Tribunal heard representations on 22 "test cases" co- ordinated through the TUC (Preston and Others v Wolverhampton Healthcare Trust and Others). The 'test cases' were put forward by five affiliated unions and one non- affiliated union; a further 15 unions have submitted claims to the industrial tribunals. All other claims remain stayed at the industrial tribunals pending the outcome in Preston. The TUC and all unions with claims submitted have made a contribution to the costs of the test cases and the EOC has also made a substantial contribution but the majority of funding has come from the six test case unions, who have also acknowledged their liability for costs if the claims do not succeed.

The industrial tribunal was asked to determine four legal issues: whether the two year limit on retroaction in the Equal Pay Act was applicable; whether the claims had been submitted in time; whether employees in the education sector employed on short term contracts had the required continuity of service; and whether male part time workers could claim. The tribunal ruled that the two year limitation did apply; that claims not submitted within six months of the end of the period of employment in question were out of time; that those on short term contracts did not have continuity of service and that male part time workers were able to claim.

The ruling was upheld on appeal to the Employment Appeal Tribunal (EAT) in June 1996 and again at the Court of Appeal in March of this year. At the EAT stage, the TUC asked for a reference to the ECJ on the two year retroaction point and the time limits point. Legal advice indicated that there was little prospect of success in the domestic Courts but a good chance in the ECJ, although it might be necessary to go as far as the House of Lords to get leave to refer to the ECJ. Both Courts refused to allow the reference. The Court of Appeal gave the TUC leave to appeal to the House of Lords on the two reference points but not on the continuity points. The TUC petitioned the House of Lords on the continuity points but was not successful. In contradiction to its decision not to allow the TUC to refer to the ECJ, a differently constituted EAT allowed a reference to the ECJ in a parallel claim under the Equal Pay Act (Levez v Jennings). Clearly this reference will affect the pensions claims but it has been necessary to keep the Preston appeal activated, to ensure that the claims stayed at the industrial tribunals are not struck out. The appeal is not likely to be heard by the House of Lords before the end of the year.

The TUC has written to the various Government departments which are respondents in the claims, urging them to stop resisting the reference to the ECJ, as the issue of retroaction urgently requires definition by the ECJ, and the parallel Levez claim has already been listed by the ECJ. The Government is considering the matter. In the

meantime the TUC continues to keep all the unions involved briefed on developments and the campaign continues to attract wide coverage in the media.

6.6 Women's pensions power

Preparations are being made for the TUC's Women's Pensions Awareness Week, which will take place between 22-26 September. The aim of the week is to raise women's awareness of their need to make some provision for their retirement. The message of the event is 'it is never too late to start thinking about your pension - the sooner you start, the better off you will be when you retire'.

In addition to information leaflets aimed specifically at the pensions needs of women, the TUC will be running a freephone telephone advice line to provide help and information to women with pensions queries. Unions have been asked to encourage their women members to call the line, which will be staffed by pensions experts. The number is 0800 882 123. In addition, via affiliated trade unions, the TUC is hoping to work in partnership with a small number of employers with a large number of women workers to encourage them to join their occupational pension scheme. Unions are also co-ordinating activities around the campaign, for example pensions seminars to regional pensions groups and leaflets aimed at women members.

6.7Investing occupational pension funds

Over £650 billion is invested in occupational pension funds and, in line with the resolution carried at the 1996 Congress, the TUC has continued to encourage trustees to take an active role in deciding how and where this money is invested. In line with the TUC Shareholder Voting Guidelines, the TUC joined the campaign mounted by the Pensions Investment Research Consultants in March, which urged member-nominated trustees MNTs to discuss with their co-trustees a resolution calling on Shell UK to adopt standards of best practice on environmental policy and business ethics. Shareholders had put forward this resolution following the controversy over the disposal of the Brent Spar storage tank and Shell's role in Nigeria, over which concern was expressed at last year's Congress. Although this resolution was defeated at the Shell AGM, it received considerable support and was successful in highlighting to MNTs their responsibilities as active shareholders.

In his July Budget, the Chancellor announced that, with immediate effect, pension funds could no longer claim a tax credit in respect of Advance Corporation Tax. In the context of the TUC's desire to encourage employers to establish occupational pension schemes for their employees and concern about the impact on defined contribution schemes, the TUC met Helen Liddell, Economic Secretary to the Treasury, in July to discuss the impact the abolition of ACT credits on pension funds. Whilst recognising the need to encourage long term investment in the economy, particular concern was expressed over the impact of the Budget announcement on local authority pension funds and a possible increase in members' contributions generally. The TUC has also briefed MNTs on the likely impact of the change on their funds and has encouraged them to examine their scheme's investment strategy in response to the new changes.

6.8Services to members Over the course of this Congress Year, the TUC has continued to provide a range of services to negotiators, member-nominated trustees and scheme members. In particular, the services have focussed on gearing negotiators and trustees up for the Pensions Act.

Publications

The TUC's own pensions magazine, the TUC Pensions Briefing, continues to be produced and is subscribed to by over 800 people. It is published on a quarterly basis in November, February, May and August. The TUC Pensions Briefing is one of the main vehicles through which the TUC has sought to explain the implications of the 1995 Pensions Act. The "Pensions Act Explained" series of articles has looked at how various aspect of the Act will work, and what MNTs and negotiators can do to ensure that they are able to improve upon the minimum standards laid down in the Act in such a way as to secure the maximum protection for the members of occupational pension funds. The magazine has also updated union members about other legal developments in pensions, for example legal challenges by unions on the Transfer of Undertakings (Protection of Employment) regulations (TUPE) which currently do not apply to occupational pensions. A number of guest writers have contributed articles to the TUC Pensions Briefing this year.

As already described, a new negotiators guide was published in June called Getting the Best from Defined Contribution Schemes. This guide was written and published jointly by the TUC and Union Pensions Services. It was produced in response to the growing number of defined contribution schemes which are being established, often as replacements for existing final salary schemes. The guide explains: what defined contribution schemes are; how they differ from final salary schemes; the benefits defined contribution schemes could offer; and the issues for trade unionists. The publication includes a checklist and case studies of defined contribution schemes.

As its name would imply, The 1995 Pensions Act - a TUC Guide describes the main features of the Act and explains how union negotiators and trustees can try to ensure that their members get the maximum protection out of this flawed piece of legislation. As explained above, this publication was produced to co-incide with a TUC pensions conference on the Act. Each delegate to the conference received a copy of this publication.

The TUC Handbook on Occupational Pensions for Negotiators and Trustees continues to be well received by trade union members with an interest in pensions. Its loose leaf format has enabled the publication to be updated periodically. Two updates have been published this year covering the new contracting out regulations and the changes to the law following the 1995 Pensions Act on pension fund surpluses.

Seminars and Conferences A third series of regional seminars took place between January and March 1997.

The theme of this year's seminars was the Countdown to the Pensions Act. Nine seminars took place in eight locations and were attended by around 400 delegates in total. Plenary sessions explained the detail of particular sections of the Act over which unions could exert most influence and which had an implementation date of 6 April, namely selecting and electing member-nominated trustees; internal disputes resolution procedures and scheme administration. A workshop based approach allowed delegates to consider the application of the Act to their own schemes, and to discuss common problems and approaches.

As outlined above, on 25 November 1996, a major conference was held, The Future for Pensions: pensions after the Pensions Act. This looked at the immediate issues facing pensions following the 1995 Pensions Act and also some of the longer term issues. In addition to Harriet Harman MP, the conference also heard from Tom Ross, Chairman of the National Association of Pension Funds; Lady Diana Brittan, Deputy Chairwoman of the Equal Opportunities Commission; and Frank Field MP as well as many other expert speakers. The conference received favourable reviews from delegates, many of whom were drawn form the pensions industry - a reflection of the high regard with which the TUC's work on pensions is now held outside the trade union movement.

On 2 June a conference was held called Defined Contribution Schemes: friend or foe? This conference examined some of the technical issues involved in running defined contribution schemes, such as investment, as well as the concerns trade union members might have when their scheme is changed from a final salary scheme to a defined contribution scheme. This conference was organised under the auspices of the TUC's Pensions Review Working Group (PRWG). John Denham MP, the Parliamentary Under State for Social Security, was the keynote speaker at this conference.

Member Trustees' Network The 1995 Pensions Act places new rights and responsibilities on trustees and also gives scheme members the right to nominate at least a third of the trustee board. Despite the problems in the legislation (outlined above) this has meant an increase in the numbers of member-nominated trustees. The TUC has responded by continuing to develop the TUC Member Trustee Network, which remains the only organisation of its kind providing services specifically tailored to the needs of member-nominated trustees. Membership of the Network has more than doubled over the last year. There are now around 800 member-nominated trustees registered on the Network, membership of which remains free of charge. These trustees are drawn from a wide range of unions and schemes.

As part of the services it offers to trustees, the TUC Member Trustee News has continued to be produced. The newsletter is published on a quarterly basis in October, January, April and July. The newsletter informs trustees of their duties and latest developments. For example, the latest edition of TUC Member Trustee News focused on the Budget changes. The newsletter is send free to all members of the Network. Members of the Network have also received copies of publications from the new Occupational Pensions Regulatory Authority (OPRA) which are of direct

relevance to trustees.

Over the course of this Congress Year, services for trustees from the TUC Member Trustees Network will be developed further. A Handbook for trustees will be produced shortly.

Training One of the positive features of the 1995 Pensions Act is the right for member- nominated trustees to have paid time off for training. The General Council have continued to recognise the importance of training for MNTs and have stressed that the best place for union members to receive pensions training is trough their own union or through the TUC.

In response to these new rights, the TUC produced a new training course on pension fund trusteeship and this was circulated to colleges in September. Also in September, the Computer-based training course for member-trustees became available. This was developed in co-operation with Jacques Martin Unity and the Aries team at the City University. The new computer-based package has been well received and has generally been found to be easy to use. A second stage course (looking at the issues covered in the existing stage one package) is being planned, as are updates for the stage one course.

6.9 Pensioners Committee

The TUC has continued to convene meetings of the Pensioners Committee, whose membership is listed in appendix 2 . The Committee's principal objective is to campaign for a better standard of living for Britain's 10m pensioners.

The Committee met twice during this Congress year. At their first meeting they considered the TUC Budget statement made in advance of the autumn 1996 Budget and made a number of comments which were taken into account in the final submission. At its second meeting, the Committee held a discussion with the TUC General Secretary.

The TUC Pensioners Committee has continued to be involved in the European Federation of Elderly and Retired Persons (FERPA), the secretariat for which is provided by the ETUC. Mr Jack Jones continues to represent the TUC on the FERPA Executive Committee, and is currently Vice President of FERPA. The TUC has made efforts to encourage more union retired members' associations to affiliate to FERPA, and in November, the General Secretary and Jack Jones met Georges Debunne, President of FERPA, to discuss this matter.

Once again, the TUC Pensioners Committee organised a Pre-Congress Pensioners' March and Rally, the 1996 event was attended by more than 300 pensioners and a similar number are expected at the 1997 event.

The Committee remains in close contact with the National Pensioners' Convention.

Annex

TUC Pensions Review - the future for pensions Interim report of the TUC Pensions Review Working Group

(set summary as a box )

executive summary

1.There is a serious concern about pension provision in the UK. A number of factors have prompted pressure for reform. These include: labour market and demographic changes; the decline in the value of state pensions; and changes in occupational pensions.

2.Current system of pension provision in the UK is failing to meet the needs of a growing section of the workforce. Less than 50 per cent of the workforce belong to occupational pension schemes and this number is declining. Meanwhile, state pensions have come under attack. The result is that many workers will face financially insecure and uncertain retirements.

3.The value of the basic state pension has been allowed to decline as a result of the policies of the last Government. However, the basic state pension continues to provide a very valuable benefit floor for many pensioners, particularly the low paid and women. Increases to the basic state pension should be linked again to the higher of prices or earnings.

4.The State Earnings Related Pension Scheme (SERPS) can no longer be relied upon to provide a decent pension in its own right. Alternatives to the current state second tier pension scheme should be examined. A state second tier pension could be one vehicle through which people outside the labour market could be pensioned.

5.Occupational pension schemes remain the best and most efficient way to provide retirement incomes for the vast majority of working people and even these schemes can be improved upon in the majority of cases. However, the numbers of workers in occupational schemes is declining. Employers should be able to make scheme membership a compulsory condition of employment, subject to meeting minimum standards.

6.It is essential that employers demonstrate a proper level of commitment to running an occupational pension scheme. Employers and employees should be required to make minimum contributions to schemes at adequate levels. This will be particularly important for the growing number of defined contribution scheme members.

7.The TUC recognised that there may be circumstances in which occupational defined contribution schemes are the most appropriate form of pension scheme. These factors were recognised in the TUC/UPS guide Getting the Best From Defined Contribution Schemes.

8.It is necessary to look at new forms of occupational pension provision. Industry-wide schemes hold a number of attractions - they could be a method of bringing into pensionable employment many of the workers currently excluded from occupational schemes. These schemes should meet a certain quality threshold and should be well regulated. Given the desire to extend occupational pension scheme coverage, the TUC will be discussing with Ministers the impact the abolition of the Advance Corporation Tax tax credit and other Budget measures will have on occupational pension funds.

9.Final salary occupational pension schemes will remain the best way to provide pensions for the majority of working people, and remain the TUC's favoured pension option in negotiations with employers. However, there are a number of problems with the way in which final salary occupational schemes operate which need to be addressed in order to ensure that schemes work meet more fairly the expectations of scheme members. Problems include transfers between schemes and transfers of undertakings.

10.Individualising pension rights is not the best way to provide pensions for most workers. Generally, personal pensions are expensive, and provide inadequate benefits.

End box

-------------------- Introduction

One of the most important challenges facing the trade union movement in the coming decades will be the future for pensions - at its simplest, how we ensure that people have enough money to live on once they stop working.

Recent socio-economic changes have raised questions over the adequacy of the current pensions arrangements and whether they can meet the demands of the current workforce, as well as those outside it. Whilst, on the one hand, many workers belong to occupational schemes negotiated by trade unions, many other workers do not enjoy these rights and will retire on an inadequate income. This 'future for pensions' debate is not only the concern of Government and the pensions industry. They are issues, too, for the trade union movement because what is at stake is the deferred pay of millions of trade union members - union concern over workers' welfare does not end when people stop working, it carries on into retirement.

The TUC starts from the fundamental position that all working people should have

the right to a quality, collectively- provided pension regardless of their employment status. These goals were established in a resolution passed at the 1996 TUC Congress and have been explored over the course of this Congress Year by a Pensions Review Working Group.

1996 Congress Resolution The Resolution agreed at the 1996 TUC Congress instructed the General Council to: "investigate the alternatives available for extending occupational pensions coverage in the UK..." and was set against a background of union concerns over current state and non-state pension provision. These included: the falling numbers of workers in occupational pension schemes; the shift from salary-related to defined contribution schemes; the mis-selling of personal pensions; and government attacks on the basic state pension and on the State Earnings Related Pension Scheme (SERPS). It said that all workers should have the right to join a second tier pension scheme into which they and their employers should be required by law to pay contributions.

TUC Review and Working Group In order to facilitate the TUC Review, a Working Group was set up to consider the views of affiliates and others and to consider the options for ensuring that the goals set out in the Congress Resolution could be achieved. A consultation document, The Future for Pensions, was circulated to all affiliated unions in April. Affiliates welcomed the Review, and their comments recognised the seriousness of the existing structure and level of UK pension provision and the problems the country would face if these issue were not tackled in a meaningful and thorough way.

The TUC Review is not taking place in isolation. Many non-affiliated organisations have completed, or are in the process of completing, their own reviews of long term pension policy. For this reason, The Future for Pensions consultation document was circulated to a number of non-affiliated organisations with a significant interest in pensions. Their responses identified a number of issues of common concern were identified on which the TUC hopes progress can be made jointly.

The most significant pensions review will be that undertaken by the Government itself. The Review was announced on 17 July and will focus on both state and occupational pensions. The aim will be to develop the policies set out in the Manifesto and in the Labour Party Road to the Manifesto Document Security in Retirement. The TUC welcomes the Government's recognition that the status quo is not acceptable and looks forward to playing a positive role in the Government's Pensions Review. Openness is the principle underlying the TUC Pensions Review. A successful outcome to the 'future for pensions' question can only be achieved if employers, trade unions, the pensions industry and government are involved in designing solutions. The TUC is ready to work with others to achieve an enduring consensus which will ensure that pensions are no longer treated as a political football.

Pressures for change Pension provision in the UK is a considerable way short of the standards set in the 1996 Congress Resolution which set the achievable goal of ensuring that all workers would

be protected by adequate pension benefits. Labour market changes There can be little doubt that there have been significant changes in the labour market over the last two decades. These changes mean that there is a growing proportion of the workforce for whom a final salary type pension, which most benefits those with long service and rising earnings, would no longer be as appropriate, even if they were able to join it: temporary employment gives few opportunities to join an occupational pension scheme as the majority of occupational pension schemes are only open to permanent employees.

self-employment by definition, self employed workers are not eligible to join an occupational pension scheme. Personal pensions are the only alternative, but for the growing number of workers forced on to self-employed contracts by employers attempting to reduce labour costs, this may not be an affordable option. part-time workers the majority of part-time workers do not belong to occupational pension schemes. Despite recent advances in the European Court of Justice (Vroege and Fisscher, 1994) many part- time workers, particularly in the private sector, are still barred from joining their occupational pension scheme because of unreasonable hours thresholds set by their scheme rules.

second job holders people take second jobs to supplement income from a first, low paying, job which may itself not provide pensionable employment or may only provide poor pension benefits. Because there is no right to join more than one occupational pension scheme, there is no right to augment one inadequate pension by contributing to another.

flexibility the labour market has become increasingly flexible and insecure over the last few decades. Many employers have created a core and periphery workforce, with the periphery often in unpensionable employment. Workers who chose, or are forced, to change jobs on a regular basis may also lose pension rights if they are outside the Public Sector Transfer Club. Redundancy is also having a negative effect on workers' pension rights.

Taken as a whole, there is a large, and growing, section of the workforce without occupational pension and without the opportunity to accrue occupational pensions. Because the majority of these workers are low paid (and often women) many of them will take the poverty they have experienced in work into retirement.

Demographic factors Arguments about the current direction of demographic trends are also driving the debate on the future for pensions. At its simplest, we are living longer, whilst at the same time

the birth rate is falling. The concern is that the falling support ratio means that the current state system, financed on a pay-as-you-go basis, is too expensive to maintain at current levels of taxation. This was the deciding factor behind the Government's decision to equalise the state pension age at 65. The TUC recognises that the so-called "demographic timebomb" is an issue which cannot be ignored. It is a fact that the population is aging, and that there are fewer contributors to the current state system. However, the TUC is concerned that the issue has been overstated to suit political ends and as an argument to reduce state expenditure on pensions, already amongst the lowest in the EU, still further. A recent report from the OECD shows that with the possible exception of Canada, the UK is in a much better position than any of the other G7 countries to deal with the challenges ahead.

Trends in occupational pension schemes Currently, less than half (48 per cent) of the UK workforce belong to occupational pension schemes. This compares with over 52 per cent 15 years ago. This decline is partly accounted for by the fact that the Conservative government abolished compulsory scheme membership in 1988. At the same time, new occupational pension scheme arrangements have been introduced. Whilst COMP schemes and Group Personal Pensions have proved a way of meeting some of the TUC's concerns about the flexibility and availability of benefits, the TUC is concerned that many of the new schemes have been introduced as replacements for existing final pay schemes in order for employers to reduce the costs of providing pensions at the expense of scheme members' best interests.

State pensions Both the basic state pension and the State Earnings Related Pension Scheme have declined markedly in value over the last 20 years. This has been the result of Government cut backs driven by a fear over the rising costs of providing state pensions and an ideological view that the state should not be involved in providing pensions.

--------------------------------- 2 the basic state pension

The basic state pension, the first tier of the UK pension system, is a flat rate pension currently worth only £62.45 per week. Around 10 million people are in receipt of a basic state pension, of whom 95 per cent of male pensioners receive a full pension, compared with only 28 per cent of women.

Currently, the basic state pension costs £26 billion pa, but even given the sizable amount currently spent, as a percentage of GDP, the UK spends the third least on providing pensions in the EU. This is reflected in the fact that the UK state pension is one of the lowest in the EU. In addition to this cost, some 2.9 million pensioners are in receipt of means tested benefits totalling £7.5 billion, another reflection of the inadequate level of the basic state pension. The TUC wishes to see the basic state pension set at a level which eliminates the need for pensioners to claim income support.

The basic pension is currently uprated annually in line with price inflation (the increase

is announced in November, based on September's RPI data, and the increase comes in to effect in the following April). Prior to 1980, the basic pension was uprated annually in line with the higher of prices or earnings. The result of this policy change has been a drastic fall in the value of the pension. In 1980, the basic pension was worth 25% of average earnings. By 1996, this had fallen to around 16% and by the 2030 its value is predicted to fall even further to only around 9% of average earnings. Despite its low value, the basic pension remains a very valuable source of income for many pensioners. This especially true of existing pensioners, the low paid and women, many of whom do not qualify for a pension in their own right but gain entitlement through their husband's contributions. This remains so now and will remain so in the future.

The current level of the basic state pension is a major cause of concern for the TUC. Whilst the General Council has made it clear that this current TUC review excludes reference to first tier pensions, it is clear that a review of second tier pensions cannot be looked at in isolation from the first tier. Second tier pensions can only succeed, and achieve the goals outlined in the 1996 Congress resolution, if they are built on decent and secure first tier pensions. For this reason, the TUC Pensions Review has reaffirmed Congress' commitment to a secure and adequate state pension based on the pay-as- you-go principle. As a starting point, it should be made clear by Government that the basic pension will remain a universal benefit and that there will be no attempt to move towards a system of means testing. Furthermore, Government should make an early commitment to halting the decline in pensioners' incomes. The first step should be the restoration of the earnings link. This would have a positive impact on the incomes of millions of pensioners, many of whom are amongst the poorest in society.

--------------------------- 3 SERPS

The State Earnings Related Pension Scheme was introduced in 1978 amongst all party consensus as an earnings-related second tier pension scheme. Around 4 million pensioners are currently in receipt of SERPS, at a cost of £2b a year. As the scheme matures, the costs are estimated to rise to £12b per year. 17per cent of the workforce (the majority of whom are women) remain in SERPS, of whom 5per cent are also members of contracted-in occupational pension schemes.

Alarmed at the costs of providing earnings related pension benefits, financed via a pay- as-you-go scheme, the Conservative Government introduced changes to SERPS which have drastically reduced its value - it is now worth less than half its intended 1978 value. The main victims of these changes have been women and the low paid for whom SERPS provided adequate and secure benefits when the scheme was introduced. The Government also made it easier for workers to opt out of SERPS by introducing new forms of pension (principally personal pensions) and offered "incentives", paid for out of public finances, to encourage people to leave the state scheme.

In responding to the consultation document, unions recognised that SERPS can no longer be relied upon to make a significant or adequate contribution to workers'

retirement incomes. However, unions argued that there is some role for the state in providing second tier pensions particularly by extending pension coverage to those currently outside the labour market, for example through a system of 'crediting in', via SERPS, or some alternative form of secondary state provision. It was recognised that this could have a particularly positive impact on women's pension entitlements. The Working Group commissioned Bryn Davies FIA, Director of Union Pensions Services, to investigate the current strengths and weaknesses of SERPS and to set out the options for providing a second their state pension. The main findings of his report, which will be published in full later in 1997, are set out below:

The state will continue to have a role both in terms of regulating private pension arrangements and in establishing minimum standards of second tier pension provision. In addition it is clear that any rights to SERPS benefits that were accrued prior to any change should be fully protected, which means that some sort of SERPS structure will be maintained for many years in any event. Against this background, the main policy options for future second tier provision are as follows: 1.shift to private provision Under this option, SERPS would be abolished and be replaced with mandated private schemes that meet minimum standards, eg through occupational pension schemes. The PRWG recognised that the main shortcomings of this approach would be coverage and the level of expenses, particularly selling costs and that therefore such a scheme would fail to meet the needs of many workers, particularly those on low earnings.

2.Retain the existing SERPS The existing levels of benefits would be retained, together with the current system of contracting out. The probable result would be that SERPS would be left to 'wither on the vine' and would only provide an inadequate level of benefits.

3.Citizenship Pension SERPS The existing SERPS, at existing levels, would be used to target special groups, eg workers on earnings near or below the lower earnings limit. The main advantage in using SERPS in this way is that appropriate groups could be credited in without requiring any increase in public expenditure in the short term. However, if the existing SERPS structure continues, there seems little point in excluding those who want to stay in it.

4.Restore the original SERPS This would produce adequate second tier pension, it would also require a substantial increase in National Insurance contributions which might not be politically feasible, whilst problems arising from the current lack of understanding or public support for SERPS would still not have been addressed.

5.establish a new state scheme incorporating SERPS The state would establish a new earnings related second tier scheme, providing benefits at an adequate level, and targeted at the special needs of people on low pay and insecure employment for whom private provision is uneconomic without state support. The aim would be to ensure that the level of benefits was increased as the economy grew. The scheme would build on the positive features of SERPS, but would aim at building greater political support among those who belong to

it which is critical for its long term success. Its benefits must be properly understood - for example, it could be run by an autonomous institution where members' contributions purchase specific rights to future benefits. Members could also receive regular statements setting out their accrued and future benefits. There is also room for some flexibility on how such a scheme should be financed, for example through a mix of funding and pay-as-you-go arrangements. This could increase transparency of rights and provide protection against future political risk.

The PRWG is considering each of the options in the research paper very carefully and is inclined towards the many advantages of the latter option. ___________________________ 4 occupational pensions The TUC remains committed to the view that the best way to provide an adequate retirement income for most people at work will be through an occupational pension. However only around 50 per cent of the workforce belong to such schemes. This means that the remaining 10m workers who are not in these schemes must rely on either inadequate state benefits or expensive personal pensions. The main reason for the decline in membership of occupational pension schemes is the removal of the right for employers to make scheme membership a compulsory condition of employment. As a result, many workers - particularly women - opted out of, or declined to join, their occupational pension scheme. Whilst this may represent a saving in the short term, in the long term it will mean a depressed level of pension on retirement. The TUC is of the view that the most effective way to reverse this trend and at the same time ensure that workers were assured of a decent second tier pension which meets minimum standards, would be to allow scheme membership to become a compulsory condition of employment again. The best way to achieve this would be through a change in primary legislation (the 1986 Social Security Act). We believe that there would be considerable support for such a legislative change within the pensions industry, employers and employees. Final salary schemes The TUC remains committed to its view that a final salary pension scheme is the best route through which to provide occupational pensions for the majority of working people. They provide guaranteed benefits based on salary at the time of retirement and so the worker will know, and will be able to plan with some accuracy the level of the final pension. Because of the security they offer, it is these schemes which trade unions have traditionally sought to negotiate. The TUC recognises that a in large number final salary schemes benefits need to be improved through negotiation. Transfer values and deferred pensions Despite being the favoured vehicle for providing pensions, it is recognised that final salary pension schemes are not without their problems. As the labour market changes and workers become more mobile, there has been a concern (voiced by the TUC and affiliated unions) over the inflexibility of final salary benefits which often means that workers' pensions expectations are reduced by unfair transfer values. Where a transfer takes place, with the exception of the Public Sector Transfer Club, scheme members

do not receive a year-for-year transfer value. This may be for a number of reasons, not least of which is a failure on the part of employers to comply fully with the transfer regulations on issues like the inclusion of discretionary benefits in the calculation of the cash equivalent. The main problem, however, lies in the revaluation requirements for deferred pensions. The TUC wishes to see revaluation on an earnings-related basis to generate past service reserve transfer values.

The TUC believes that legislation should be introduced which requires full compliance with the transfer regulations. There must also be legislation requiring schemes to accept transfer values. Pensions and TUPE Under the Transfer of Undertakings (Protection of Employment) regulations, terms and conditions of employment must remain the same for employees when the business undertaking they work for is transferred from the control of one employer to that of another. However, there is a specific provision in TUPE that pension rights under occupational pension schemes are not included in the terms and conditions covered by the regulations, so pension rights do not have to be the same. The practical effect of this has been that many workers, particularly those in the public sector, have lost very valuable pension rights. A number of unions have tried to challenge the exclusion in the TUPE regulations, most recently the joint GMB/ UNISON challenge in the Adams v Lancashire County Council and BET Catering Services case. It is clear that the law need to be changed in this area and that the TUPE regulations and the Acquired Rights Directive should be amended to give protection to workers' pension rights on transfer. Already, the Government advises that broadly comparable pensions should be provided in the public sector when an undertaking is transferred, but this does not go far enough. Defined contribution schemes Defined contribution (DC) schemes were introduced on a contracted out occupational basis in 1988. The trade union movement has traditionally taken a cautious attitude towards these types of schemes, not least because the guarantees and certainties which exist with final salary schemes are not present in DC arrangements. Over the last few years, however, the numbers of DC schemes has increased, particularly as a result of employers shifting from final salary schemes to DC schemes. Unions responses to The Future for Pensions recognised that defined contribution schemes would play a more significant role in providing pension benefits in the future. These points were developed at a TUC Conference held on 2 June (Defined Contribution Schemes: friend or foe, organised under the auspices of the PRWG) and in a joint TUC/ Union Pensions Services publication Getting the Best from Defined Contribution Schemes, also published in June. This work concluded that although final salary schemes would continue to provide the most satisfactory and predictable level of benefits, and that therefore there was no reason for unions to seek any fundamental shift to defined contribution, it does not lead to the conclusion that a defined contribution scheme is bound to be unsatisfactory. Indeed there will be some circumstances in which a DC scheme will be the only practical option. Of critical importance to the final value of the defined contribution benefits to the scheme member will be the level of the employer and employee contribution. The TUC / UPS publication has provided valuable guidance for union negotiators covering issues such as contribution structure,

investment options and advice to members. Group Personal Pensions Despite recognising the potential role occupational defined contributions schemes have to play, the TUC has many concerns over the widespread introduction of Group Personal Pensions. It seems that in many instances, these schemes are introduced as a cut price way of providing pensions. Group personal pensions do not, generally, enjoy the same level of financial commitment from employers as occupational pension schemes and are often introduced as a way of circumventing the already weak provisions in the 1995 Pensions Act (in particular the right for scheme members to nominate trustees to govern the scheme).

The TUC is also concerned over the impact of charges and commissions levied on GPP holders. Whilst it is true that, because of the economies of scale involved, these are likely to be lower than in an individual personal pension arrangement they can, nevertheless, have a damaging impact on the final size of the benefits. This can be particularly true if someone leaves a GPP arrangement after being in the scheme for only a few years and moves to another employer who has a different GPP arrangement or who has an occupational pension scheme which the member joins. The TUC has commissioned research on the effects of GPP charges and commissions on policy holders, the results of which will be published during 1997. The Regulatory structure The Maxwell scandal, when £450 million was stolen from his workers' occupational pension schemes highlighted the lack of regulation governing occupational pensions. The 1995 Pensions Act, is the final result of the four year review of the law regulating occupational pension schemes. In the TUC's view it is far too weak.

The Pensions Act has now been in operation for five months, and the TUC is monitoring its progress and defects. As described in this chapter, the TUC will continue to press for tougher laws to protect the members of occupational pension schemes. The TUC is clear that when workers join a pension scheme it is one of the most important financial decisions a worker will make, and for this reason they should do so secure in the knowledge that their money is secure and that it will be there for them earn they come to retire. ------------------------------------ 5 personal pensions

Personal pensions became widely available as a result of the 1986 Social Security Act. Around 5 million people now have a personal pension, many having opted out of good occupational pension scheme to take advantage of the Government's "incentive payment" aimed at persuading people to leave SERPS. Many of those who have taken out personal pensions are those for whom a private arrangement is the least suitable - workers over 40 and the low paid.

Whilst recognising that personal pensions can provide pension benefits for those who do not currently have the opportunity to join an occupational pension scheme and for highly mobile employees, the TUC has grave concerns of the way in which personal

pensions were introduced, in particular the self-regulatory regime which polices the selling of personal pensions. Up to 1.5 million people may have been mis-sold a personal pension. All but 7,000 are still waiting for compensation.

It is clear that the current viability of personal pensions is open to question. For the majority of working people, personal pensions are not an adequate or cost effective alternative to occupational pensions. This will be particularly true for lower paid workers. This is not to say that personal pensions should be prohibited altogether. Personal pensions may have a limited continuing role in certain specific circumstances. However, they must be better regulated, starting with a more thorough investigation of the worker's current financial/ pensions arrangements before a sale is made.

------------------------------------------- 6 future options

It is clear that there are serious problems facing pension provision in the UK. Demographic pressures have created political pressures to reform the state pensions sector whilst labour market pressures mean that there is an increasing number of people who are excluded from accruing pension benefits. At the same time, the Maxwell and personal pensions mis-selling scandals have meant that occupational and personal pensions have lost credibility with some workers.

The aim for the TUC, as set out in the 1996 Congress resolution, is to reverse this damaging trend and to ensure that all workers have access to a pension on which they can rely in old age. It is clear that there is room for alternative provision, in addition to the measures already outlined, which would expand second tier pensions coverage to those not already covered.

Industry-wide schemes One option which is worthy of further consideration is the development of schemes along an industry-wide lines. Pitched at the right level, and with a decent contribution from the employer and the employee, industry-wide, providing defined contribution benefits, could provide a real answer how unions ensure their members in industries which currently have a low level of pensions coverage, and which are characterised by small employers who are the least likely to provide occupational pension schemes. These schemes could also incorporating to membership temporary, part-time and self- employed workers. These schemes could also provide a positive role for trade union involvement. Firstly, they would be collective schemes, negotiated by trade unions which would have considerable advantages over the individualised personal pensions which available to non-pensioned employees at present. Secondly, because of their collective nature, there would also be a role for union involvement as trustees.

A number of models already exist as unions are already taking the lead in negotiating and providing industry-wide schemes: URTU has negotiated a plan for its 15,500 members; MSF has been involved in setting up the COVER plan for its members in the voluntary sector; the GPMU has long been involved in the Printing Industry Pension

Scheme; and the TGWU is in the process of negotiating an industry-wide pension scheme to provide protection for its 175,000 agricultural workers. UNISON has also been involved in establishing the Privatised Pensions Trust.

However, industry-wide schemes should not be allowed to become a low cost/ low benefit alternative to decent occupational provision. Similarly, the TUC would not wish to see employers winding up final salary schemes and 'dumping' their workers in to inferior industry-wide schemes. The schemes must offer decent benefits and must be properly regulated.

Basic principles Whether they are provided as final pay schemes or defined contribution schemes, pensions should, in the future, be based on the following principles: compulsory scheme membership - all workers should belong to a second tier pension scheme which provide adequate benefits: -where an employer sponsors a scheme, membership of that scheme should be able to be made a compulsory condition of employment again;

-where there is no single-employer backed scheme, workers should have access to an appropriate industry-wide scheme; -the state-backed second tier pension scheme will be the most appropriate retirement savings vehicle for other workers ; and

-personal pensions could remain as an option, and may be the appropriate choice for some workers.

compulsory contributions - all employees and employers should be required by law to contribute to schemes at adequate minimum levels; benefits should be easily transferable; they should be well regulated and secure to prevent a repetition of the personal pensions mis-selling the Maxwell scandals; where schemes are established on a defined contribution basis, they should have a low charging structure to ensure that workers' savings are not be eroded; they should be flexible to allow for varying levels of contributions and different working patterns; and they should be based on the principle of equality between women and men.

The year ahead The Pensions Review Working Group will continue with its work over the course of the next Congress year. Key outstanding areas of work include:

the future of the state second tier pension scheme;

developing a model of how industry-wide schemes should operate, including the development of minimum standards and contributions and how the trade union role would be defined;

consideration of the merits of a National Savings Pensions Plan;

considering how to put in to effect compulsory scheme membership as well as compulsory employer and employee contributions; and

considering how, where and to what standards the new pensions should be regulated.

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TUC Pensions Review Working Group The TUC Pensions Review Working Group (PRWG) is chaired by Tony Young, General Council lead on pensions issues, and comprises trade union pensions specialists. Membership of the PRWG is as follows: Tony YoungGeneral Council Roy AbrahamsNational Officer, URTU Charles CochraneSecretary, CCSU Bill DayNational Pensions Officer, GMB Bryan FreakePensions Officer, MSF Glyn JenkinsSenior Superannuation Officer, UNISON John MitchellNational Officer, GPMU Naomi NianoorAdministrative Assistant, Organisation and Services Department, TUC Joanne SegarsPensions Officer, TUC Peter SmithAssistant General Secretary, BALPA Fergus WhittyDirector of Legal Services, TGWU

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new box Terms of Reference The Working Group has agreed the terms of reference within which the Review is operating. The terms of reference, based on the Resolution passed at the 1996 TUC Congress are set out below: "To examine the strengths and weaknesses of the current system of second tier pension provision in the UK, and to look at ways of providing high quality second tier pensions, in the future which b