Memorandum submitted by Unite (PE 18)
1.1 UNITE, the National Federation of Royal Mail and BT Pensioners, supports the introduction of Personal Accounts which eligible jobholders will be automatically enrolled into and which also include a compulsory employer contribution. Many of UNITE's members would not have joined a pension scheme at work by choice, but now reap the benefits of a final salary scheme. UNITE's members are a practical example of how this new scheme could benefit a large number of people in their later years.
1.2 Despite this positive development, UNITE believes that there are areas within the Bill which could be improved. UNITE is therefore calling on the Bill committee to:
· Ensure that the proposed 3% minimum employer contribution to the Personal Account can be amended without the need for further primary legislation.
· Push for the creation of a membership association to communicate with Personal Accounts scheme members, and ensure that the members' panel that is to be set up is properly informed of members' views.
· To oppose the changes to the Limited Price Indexation (LPI) of deferred pensions to 2.5% from 5%.
2 3% MINIMUM EMPLOYER CONTRIBUTION
2.1 UNITE welcomes the fact that employers will be compelled to contribute at least 3% of qualifying earnings to a Personal Account. This will mean that Personal Accounts will have a contribution total of 8% of qualifying earnings, when combined with the employee contribution and tax relief.
2.2 It is estimated that this should provide around a 45% replacement rate for lifetime median earners. UNITE recognises this as a reasonable step in the right direction, but this will need to be increased in the future to ensure that the necessary savings are made.
2.3 Crucially, the Government has bowed to pressure from the CBI and made future increases in the employer's contribution extremely difficult to achieve. The Bill has written the 3% employer contribution rate in the primary legislation, meaning further primary legislation will be necessary to increase the contribution rate. This is an unprecedented step, and UNITE are calling for parliamentarians to ensure that this rate is not set in stone, but laid down in regulations.
2.4 Actuarial studies, undertaken by UNITE, show that by the age of 30, an average worker should be saving at least 16% of their salary to receive just two thirds of their final salary in retirement, and guarantee a reasonable standard of living in retirement.
3 MEMBERSHIP ASSOCIATION
3.1 Once Personal Accounts are established there will be millions of members. Engaging with these members will be of paramount importance if the full potential of the scheme is to be realised.
3.2 UNITE welcomes the Government's proposal to establish a members' panel to ensure that members' views are taken into account by the trustees running the Personal Accounts scheme. However, there will be a number of challenges, such as how the members of the panel are to be appointed, how they are accountable to the scheme members, and how they gauge scheme member views.
3.3 As the oldest and largest occupational pensioners' organisation in the UK, UNITE has considerable experience in the area of membership administration and communications. We publish a magazine to each member eight times per year and hold regular regional meetings and an Annual Conference.
3.4 We believe that the only viable way forward for the members' panel is through the establishment of a members' organisation, along the lines of UNITE organisational structure, with an executive group that would effectively form the members' panel. This Association would be responsible for the nomination and selection of panel members. It would also be an ideal conduit for regular communications with scheme members and for panel members to gauge views. There would be a formal structure and annual meetings, together with regional meetings if necessary. A magazine could be published and sent to each member quarterly. The cost of the Association could be met from an annual fee payable by each member.
4 LIMITED PRICE INDEXATION OF DEFERRED PENSIONS
4.1 The Bill also amends provisions for revaluing deferred members' benefits in final salary occupational pension schemes. The affect of the amendments will be that accrued benefit attributable to pensionable service will be revalued by the rate of inflation, but capped at 2.5% as opposed to the current cap of 5%.
4.2 The effect of this will be that the Limited Price Indexation (LPI) of deferred pensions will moved more in line with the Consumer Price Index (CPI) as opposed to the Retail Price Index (RPI), which is the standard index of price inflation used for pensions in the UK. The current RPI annual rate is 4.3%, meaning that in current conditions deferred members would be set to lose out on an 1.8% annual accrual rate.
4.3 UNITE opposes this change to the LPI of deferred pensions, which is at odds with Government policy with regards to the restoration of the earnings link for the state pension. The Government have accepted that this is needed to retain its value, but is prepared to allow deferred pensions to devalue considerably in the time prior to payment. UNITE calls on parliamentarians to ensure that the LPI is not changed from the current 5% per annum cap.
5 ABOUT UNITE
5.1 UNITE, the National Federation of Royal Mail and BT Pensioners, is the oldest and largest occupational pensioner organisation in the UK with over 100,000 members nationwide drawn from staff at all grades in Royal Mail, BT, British Steel (Corus) and Rolls Royce & Bentley. UNITE maintains a network of over 200 branches throughout the country and campaigns in Parliament, and at a local and constituency level, to protect and improve pensioners' rights.
5.2 As existing pensioners, very many members of UNITE will not benefit from the proposed pension reform, but they remain committed to a campaign to ensure future generations are guaranteed a decent standard of living in retirement. UNITE calls on other organisations to recognise that the future welfare of the country's population is more important than protecting self interest.