Memorandum submitted by GMB (PE 15)
1. GMB is a national trade union representing 600,000 members across all sections of the economy encompassing employees in both public and private sector. We have previously responded to all major government and Pension Commission consultations on the future of occupational pensions in the UK.
2. GMB is broadly supportive of the proposals in the Bill but we have a number of concerns that the intention of encouraging and rewarding pension saving will be undermined by certain features of the proposed new arrangements. We also have some concerns relating to the other elements of the Bill relating to the Pension Protection Fund and the indexation of deferred pensions.
Personal Accounts - Contributions
3. GMB sees the low level at which the contribution rates have been set as a major obstacle to the Personal Accounts plan's success. A total of 8% of banded earnings falls well short of the level of savings most experts believe is necessary for a decent retirement income. As in previous representations, we would urge government to increase the level of contributions that must be made, in particular by employers who are in the best position to be able to make reasonable contributions.
4. The potential means testing trap is of concern to many. GMB sees this as further evidence that means testing is a flawed method of providing pension benefits. The removal of means testing will not only benefit those pensioners who do not currently claim the state benefit to which they are entitled, it will also end much of the speculation that is threatening to undermine confidence in this mechanism for saving for retirement.
5. Government has recognised that there will be some people, particularly those close to pension age that are not likely to benefit from the introduction of Personal Accounts. This was one of the reasons given for not pursuing full compulsion and instead adopting the auto-enrolment approach. GMB is disappointed with both this decision and the creation of an additional problem with the provision to phase in the contributions. This will add to confusion among many groups of potential savers as it will increase the number of people who would not benefit from saving through Personal Accounts. In addition, introducing further years of saving where the already limited contributions are even lower will exacerbate the problem of sending out a message that this level of contribution is sufficient for a decent retirement income.
6. GMB believes the contribution rates should be kept under review in order to ensure that the level of contributions being made into Personal Accounts actually keeps pace with the levels intended by government. One appropriate way of achieving this would be to either establish an independent commission to monitor this issue or to include Personal Accounts within the remit of the Low Pay Commission.
7. Another area of concern is the banding of contributions to Personal Accounts. GMB is seeking a resolution of the problem faced by part time workers with multiple employments. As the Bill stands an individual could have two or more part time jobs each of which pay £5,000 per year and not have any employer pension contribution due. This, we would argue, discriminates against part time workers, particularly those attempting to balance working and caring responsibilities who are already at a disadvantage when it comes to pension saving.
8. GMB believes that all employers should have to contribute to all their employees' retirement savings. In contrast to the Bill's proposals, we think it is appropriate for employers to contribute on the first £5,035 of earnings but for this to be optional for employees. We do not see any virtue in rewarding low paying employers.
9. GMB remains fundamentally opposed to a lower age limit on auto-enrolment. Excluding those aged less than 22 years old from auto-enrolment is in direct conflict with the proposal to make inertia work in favour of increased saving and to encourage the long term habit of saving for retirement. In addition, the lower age limit adds to the bureaucracy faced by employers and the confusion facing employees.
Personal Accounts - Compliance
10. The key to the success of Personal Accounts is the level of compliance and the enforcement arrangements that accompany the scheme.
11. GMB has consistently advocated compulsory employer contributions to workers' pension saving as the only way to ensure that individuals have the chance to build up a viable amount of pension savings during their working life. In addition, many people now in or approaching retirement have benefited from the compulsion that existed when they started work which has resulted in a substantial number of the retired and retiring workforce having some occupational pension income in addition to state provision. It therefore came as a disappointment that instead of compulsion for both employers and employees, the decision was taken to pursue the individual opt out route.
12. GMB understands that some individuals, for a variety of reasons, would be well-advised not to save at particular points in their lives. However, it is difficult for individuals to make this judgement without the assistance of financial advice. As we can assume that most people, particularly lower earners who could not afford independent financial advice, will not necessarily be sufficiently well-informed to make this decision in their long term best interest there is, at the outset, a concern about using an individual opt out to meet the concerns that have been outlined relating to compulsion.
13. Fundamentally, though, GMB is deeply concerned that poor employers will use pressure to persuade employees to opt out. Others will play on individuals' ignorance and unfamiliarity with the system to cajole them into opting out. Still more will knowingly manipulate new employees into opting out.
14. We know that by far the majority of employers will not attempt to abuse the individual opt out arrangements. Indeed the best employers will have no problem with the introduction of Personal Accounts because the pension arrangements they offer their employees already exceed the requirements for qualification. Our concern is for the minority of employers who refuse to recognise the responsibility they have to their employees to provide proper employment based pension saving. The evidence for these employers is widely available, as is the evidence that some employers go further than just not providing proper terms, conditions and remuneration.
15. Employers already abuse the individual opt out that applies to the Working Time Directive. It is short-sighted to suggest that the same employers won't use similar tactics to ensure their employees opt out of Personal Accounts. The industries that do not routinely provide pensions for their employees in the current system are also the industries with the poorest reputation for enforcing other elements of employee protection. It is to these sectors that particular attention should be paid.
16. If the decision not to pursue compulsion with regard to Personal Accounts prevails, then the enforcement of a robust protection arrangement for individuals is essential. The prevention of the abuse of the individual opt out from Personal Accounts will not be achieved through passive legislation alone. It is necessary, but not sufficient, to have an effective whistle-blowing mechanism to enable individuals and their representatives to report employers who are pressurising employees to exercise their right to opt out. There also needs to be active monitoring and follow up to convince all employers that government is serious about the provision of Personal Accounts.
17. GMB draws attention to the ongoing problems of the enforcement of the Working Time Directive because of the obvious parallel in opt out provision. However, the compliance regime that accompanies the National Minimum Wage should be used as a better model for the enforcement regime for Personal Accounts. Abuse of Personal Accounts by employers is directly comparable with abuse of the National Minimum Wage and statutory holiday entitlement. Pensions are deferred pay and abuse of pension saving should be treated as seriously.
18. In the first instance, employer participation in Personal Accounts should be recorded. If an employer has a particularly low percentage of employees to whose Accounts they are contributing, this should be actively investigated. There are some basic, key questions that should be asked of all employers such as:
· How many relevant employees have joined the company in the last year?
· How many of these employees have opted out of Personal Accounts?
· What percentage of the company's relevant employees have opted out of Personal Accounts?
19. It should be possible through existing records to cross reference these answers with the level of contributions being paid by the employer. Where there is a significant discrepancy or where a higher than reasonable proportion of members has opted out this should be proactively investigated. Importantly from this cross reference of take up and contributions, it will be possible for the government to ascertain whether Personal Accounts are having the desired impact on the section of the workforce for which they are intended.
20. In addition to the proper enforcement at a national level of Personal Accounts, it is also necessary to have a rigid set of protections for individuals. These cannot just take effect when an individual is employed as in some cases it will be too late by this point. There must be legally enforceable restrictions against employers influencing employees to exercise their opt out.
21. Firstly, protection is required from before the employment contract begins. There should be a pre-employment right not to be refused employment for not agreeing to exercise the opt out. This should be extended to ensure that employers cannot offer inducements to individuals at this stage to exercise their opt out. The only exemption that should apply is where employers provide an auto-enrolment pension scheme that is genuinely better than that provided through Personal Accounts.
22. Recruitment material, job application forms and interview practices should not be worded to give the impression (either implicitly or explicitly) that an individual is expected to opt out of Personal Accounts. GMB welcomes the provision in the Bill that provides a degree of protection to potential employees. The wording of this requirement needs to cover both individuals with no previous Personal Accounts' experience and those aiming to change jobs but maintain their pension saving arrangement. This should also cover information sought by a prospective or new employer from a previous employer. It should not be legitimate for an employer to make any enquiries of another employer about an individual's pension saving choices.
23. It is essential that the process of opting out is secure and transparent. To this end, we agree with the government's intention to ensure that the signing of an opt out should be dealt with apart from other recruitment administration and away from the workplace. This would reduce an employer's opportunity to unduly influence an individual into signing. To assist with this aim, the completion of the form could be witnessed by someone who is not employed by the same employer as the individual.
24. The submission of an individual opt out should be acknowledged by TPR with information to ensure individuals are fully aware of the consequences of their decision. It would also be useful if the opt out included a mandatory question on the reason for the individual opting out, if the reason is not appropriate the follow up from TPR should specifically reflect this. In addition if the reason given indicates employer pressure this should be followed up.
25. It is vital that the enforcement of Personal Accounts has some substantive backing in the form of redress that will act as a deterrent to employers considering abusing the individual opt out.
26. GMB supports the view that a twin-track approach is appropriate for Personal Accounts. For some individually reported abuses, the Employment Tribunal procedure is the logical route for recourse, however, the Tribunal process is seriously undermined by the lack of provision for class actions. There should be a process enabling unions and other representative groups to report and pursue employers who are trying to circumvent the system. This would be complemented by a whistle-blowing structure that enables individuals, either within a company or from outside, to report abuse of Personal Accounts with the right to anonymity if requested.
27. Substantial fines should be imposed on any employer that is exposed as wilfully abusing the Personal Accounts system. The affected employees should also be compensated for the period of time they have illegitimately been outside the Personal Accounts framework and the contributions they have missed out on (including their own) recouped from the employer and paid into their account.
Personal Accounts - Qualifying Schemes
28. As drafted, the Bill is very vague about some of the detail of the exemptions from Personal Accounts participation. It is vital that the requirements for qualifying schemes are clear, transparent and genuinely cover those schemes that provide a combination of benefits and contributions that are above those that available through Personal Accounts.
29. The issue of member contributions to defined benefit schemes is a major concern. The level of benefit provided by the qualifying scheme should be related to some degree to the level of member contribution, or at least the ratio of employer to employee contribution rate. It is not appropriate for employers to abuse the exemption route by providing a poor quality defined benefit pension scheme, such as one that is at or near the reference scheme test, and effectively price low to medium earners out of the scheme by attaching an unreasonable member contribution rate.
30. GMB is also concerned that the detail surrounding the qualification of average salary schemes is particularly lacking. An increasing number of defined benefit schemes are converting to average salary arrangements for future accrual and so it is imperative that there is clarity over what schemes will be deemed to be qualifying schemes and which are not. Again it is important that the member contribution rate is taken into account when assessing whether the scheme should qualify. It is not sufficient to only look at the benefits the defined benefit scheme is set to provide.
31. We are concerned that the granting of powers to the Secretary of State for the future to take action on these issues will serve only to make the regulation of pensions relating to Personal Accounts reactive and piecemeal. GMB does not believe this is the appropriate approach in this context. Government has the opportunity at this stage to set definite parameters and send signals to employers that Personal Accounts are not a means of watering down pension benefits. We therefore urge the government to make clear what the boundaries for qualifying defined benefit schemes are and not wait until there are problems with some schemes that a future Secretary of State retrospectively has to address.
Personal Accounts - Independent Pension Commission
32. GMB agrees with a number of other stakeholders who favour the establishment of a permanent, independent pension commission to monitor the success of Personal Accounts and make recommendations and reports as necessary.
Pension Protection Fund
33. GMB believes that individuals with pensions in the PPF should be able to access a lump sum benefit in the event that they become terminally ill. The incidence of terminal ill health will be very small but the need for access to the member's benefit is substantial. We therefore seek to include in this Bill some terminal ill health provision that would provide a lump sum of five times the individual's pension for anyone who, in their doctor's opinion, has less than 12 months to live.
Deferred Pension Indexation
34. GMB strongly opposes the inclusion in this Bill of a reduction in deferred pensioners' inflation proofing in future. There is no evidence that this will stop employers closing defined benefit schemes, nor will it encourage employers to set up new defined benefit schemes. It will however, reduce the value of some workers' pension savings in complete contrast to the intention of this Bill.