Memorandum submitted by the Public and
Commercial Services Union (PCS)
SUMMARY
1. The Public and Commercial Services Union
(PCS) is the sixth largest union in Britain and is the largest
union in the civil service with over 320,000 members.
2. PCS welcomes the Select Committee's timely
inquiry and is happy to supplement this written submission with
further information and oral evidence.
3. This submission addresses two main issues:
the principles underlying the scheme, and control of the scheme.
In this submission we wish to pose a number of questions that
have not yet been raised.
4. We have also provided a much more detailed
submission to the Work and Pensions Committee for their pensions
reform inquiry which the Committee may wish to refer to.
UNDERLYING PRINCIPLES
5. The Committee will be considering a number
of questions about the possible regulation of the National Pension
Savings Scheme proposed by the Pensions Commission. In so doing
PCS believes there are serious issues about the nature of the
scheme that need to be addressed.
6. Firstly, the NPSS in its proposed form
is not a savings scheme. It is a defined contribution scheme.
Schemes of this type involve greater risk to the individual than
defined benefit schemes, and certainly more than a state second
pension. The Pensions Commission report itself acknowledges that
the NPSS involves a transfer of risk to the individual. The implications
of this do not seem to have been considered in any detail, and
for this reason, PCS has serious reservations about this as the
best way forward for pension provision.
7. The Commission acknowledge that the potential
for good returns on the individual's fund can only exist for those
who opt for higher risk investment in equities. This also means,
however, that the individual has a greater chance of ending up
with very poor returns, for example if there is a severe downturn
on the stock market.
8. It also discusses the potential effect
on bond prices (and therefore yields) of money being invested
in much lower risk investment. Adopting a so-called "lifestyle"
investment (high risk early in life, low risk later) does not
do away with this risk; it simply seeks to balance it. But for
an individual who finds that this strategy fails them, it is of
little consolation to consider that others may have done better.
9. The possibility that some (or in extreme
circumstances, many) workers might still be left with inadequate
pensions has not been thought through. It seems to us inconceivable
that such individuals would be left without state assistance,
implying that, no matter what, there will need to be some state
underwriting for the NPSS. It would be better that this was made
explicit.
10. PCS is also concerned that little consideration
appears to have been given to the macroeconomic consequences of
requiring 3% of the wages of so many workers to be diverted into
"savings". We believe that a serious study should be
conducted considering, for example, what the effect on consumer
spending would be, how it would impact on the broader economy;
and whether it would lead to more personal debt.
11. There are also further consequences
to be considered. For example could putting large additional sums
into equities lead to a share price bubble? What effect would
it have on investment in productive economy; for example, can
we assess how much it is likely to fuel GDP growth in Britain,
and how much would end up in unproductive investment or overseas?
CONTROL OF
THE NPSS
12. The report makes clear the lower administrative
cost of having a publicly controlled scheme. We would also add
that this would mean substantially less potential for corruption.
Regulation of the scheme by the FSA could be sensible, but the
key would be to ensure that the scheme itself was under public,
and therefore accountable, control.
13. Administration of these funds by the
private sector would not lead to the trust and confidence that
such a scheme would need. We would therefore prefer the scheme
to be implemented by the civil service.
14. Collection of contributions via existing
PAYE mechanisms by HM Revenue and Customs (HMRC) and administration
and payment via the Department for Work and Pensions (DWP) would
rely on tried & tested expertise. It would also fit in well
with other collection and disbursement mechanisms.
15. Another issue to consider is the investment
policy of the scheme. Could the Government make dispassionate
investment decisions regarding the scheme? Would there be a liability
if those decisions were wrong? This is one of the reasons why
there is not a Principal Civil Service Pension Scheme pension
fund. Is there the risk that Government policy would dictate investment
in a given area/business, for instance to Rover? We would suggest
that on the other hand, the fund could be used as a public investment
vehicle to improve services and infrastructure.
16. The effectiveness of these systems will
be determined by the level of resource devoted to them, and this
might be put in doubt by the Chancellor's recent announcement
of year on year cuts in HMRC and DWP. Nevertheless, it remains
the case that public confidence, and coherence of service, will
best be served by retaining the control and administration of
the NPSS in public hands.
March 2006
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