Memorandum submitted
by Unite (PE 18)
Pensions Bill
UNITE memorandum
1. SUMMARY
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.
January 2008
