Firstly, please accept my apologies for not being at the AGM to answer your questions. Last July, when I made my commitments, I did not envisage difficulty in holding the AGM in the first three weeks of May, but this turned out to be impractical.
This has been an active and turbulent year on the pensions scene. The roll-out of the 2004 Pensions Act is largely complete. A new White Paper heralds the next Act. The Inland Revenue's simplification came into play in April. The cast of characters with influence on pensions policy has turned over. We have seen the Turner Report, and the Parliamentary Ombudsman's report on events that led to the Financial Assistance Scheme. All of this sits on top of a trend by businesses to degrade pensions and shift risk to the scheme members and the taxpayer.
Taken overall, the prospects for the retirees that OPA represents have stabilised. It has always been a principle that those retired from occupational schemes should be assured of their pensions by regulation, as far as possible, and hence not at risk from the whims or fortunes of the company. Obviously, OPA is a strong supporter of the principle on the grounds that retirees have fulfilled their part of a bargain. This year has seen some suggestions that the principle should be dropped on the grounds that it is not in the national economic interest to force companies to pay up on promises that have proved unexpectedly expensive. We would have seen more of this argument if the stock market had not performed so well in the last couple of years.
The performance of the stock market has bolstered funds and allowed trustees and companies to be more relaxed about the activities of the Pension Protection Fund and the Regulator. As you know, the PPF provides a replacement pension if your fund and company prove inadequate, and the Regulator is pressing for funding plans that will eradicate fund deficits within ten years. The replacement pension may not be as good as the company pension, particularly for those who have not reached normal retirement age. You will recall that OPA lobbied for it to be better. The replacement pension scheme has not been made better, but it has not been made worse either, and it is sufficient to insulate many from company problems and to avoid calamity for any member. I think we can say that the PPF is "working as designed" so far; the need to pay the levy to support it is accepted, and it is on course for pension schemes to be fully funded.
Satisfaction with that general improvement for retirees adds focus to the bad things that have occurred. You will be aware of the plight of those who hit trouble before the PPF existed. Some people worked for decades in the belief their pension prospects were guaranteed but will get almost no pension. MP reaction to their plight forced the government to do something, called the Financial Assistance Scheme. That FAS turned out to be no more than a gesture - the promised £20m a year for 20 years is many times less than what is needed to compensate the victims.
The Parliamentary Ombudsman has found the government guilty of reassuring the victims that their pensions were guaranteed while setting regulations that allowed schemes to be massively under-funded when the company eventually went bankrupt. The government has refuted her ruling, giving a number of dubious "reasons", prominent amongst which is a claim that it would cost £15 billion to recompense the victims. A more reasonable figure is £100m to £150m a year, index-linked, for 40 or 50 years. (See details)
The hopes for the victims now rest on either finding a source of funds that will not show up on the Treasury's accounts, or on the legal case against the government that the trade unions are taking through the European Court. OPA aligns with both these approaches, not just from empathy with the victims but because of the principles involved. There is no point in Ombudsmen if authorities can ignore them. People expect government to provide some protection from disaster, and recognise that will sometimes cost in taxes. (Control of Foot and Mouth disease is an example).
The other big group of sufferers, to be contrasted with the retirees, are employees. OPA has some associations which allow employees as their members and in any case employees are potential future members so we should not be indifferent to their situation. Companies are determined to cheapen their schemes. Where there are unions they may be able to moderate the changes. (You may not think that such good thing in the case of the civil servants, where the taxpayer funds the pensions). Where there is no recognised union the employees are in a very weak position.
There has been a disturbing trend for the company to be able to bypass the trustees, and to an extent the unions, when degrading employee prospects. This is because there is legal opinion that if the employee can be made to agree a change in his or her terms of employment then the trustee cannot refuse the change, whatever the trust deeds say. The employee can be made to agree by changing the salary policy, e.g salary increases won't be paid to those who don't agree to change. OPA, because of its concern about getting good trustees and good governance, finds this trend alarming. The legal opinion is not based any regulation, it is based on what the judge did in some particular case. In theory an individual employee could raise a challenge through the Pensions Ombudsman but that can hardly happen - it needs an employee unconcerned about reprisal and willing to fund a potential High Court action that would be much more valuable to the employees as a class than to that individual.
The Pensions Ombudsman has said that nobody should be denied justice because of the cost of action, put that does happen in practice. OPA will be pressing for more Ombudsman resources and a better balance in accountability.
The soon-to-be-released White Paper, and reaction to it, reflect the views of a new cast of characters. The Secretary of State for Work and Pensions was David Blunkett and is now John Hutton. The Minister of State for Pensions was Malcom Wicks and is now Stephen Timms*. David Willetts was the Conservative's expert on pensions but he has moved on. Nigel Waterson was the shadow minister but that is now Anne McIntosh. Phillip Hammond is the Conservative shadow to John Hutton. David Laws is the LibDem shadow to John Hutton. Steve Webb was the LibDems expert and shadow; he has changed to be Shadow Health Secretary although he still speaks on pensions. These changes to do not make OPA's task of engaging any easier, but we will persist. You will recall that OPA was pleased to have organised an All Party Political Group meeting where Steve Webb, Malcom Wicks, and David Willetts shared a platform and answered questions. All three are now in new roles.
OPA has continued to respond to opportunities when the government has consulted. You will find our responses on the OPA website. Those opportunities have related to narrow aspects of pensions - the new White Paper is an opportunity to respond on broad issues. The White Paper stems from the Turner Report. OPA developed an account of principles at the time when the Turner Report was being developed - you can find them on the OPA website. So you can judge how OPA will be responding to the White Paper.
The role of OPA in two-way communication with its associations has prospered. The regional meetings, both North and South-East, have been very successful. The efforts of the volunteers who run these meetings are much appreciated.
The OPA website continues to be an excellent source of information, on the pensions scene in general. as well as OPA facts. Anybody in an association can join the "OccPA" mailing list to get a flow of information by email. All this is almost entirely due to the efforts of our “Webmaster”, Gordon Williams.
Many of our associations responded to the first effort by OPA to survey the schemes the associations were involved with. The factual results and a summary are on the website. The wide variation in the schemes limits the value of the statistical information that can be gleaned, although the results will help the OPA in suggesting what good practice it would like to see widely adopted.
The forthcoming year will be an important one, as MPs turn the next opportunity for legislation into implemented regulations. OPA will be keeping up the pressure in all the areas that are of great concern to our associations.
Finally a personal note. When your Council next comes to decide on a chairman I will not be volunteering. The association I represent is unusual for OPA in having a large membership and no subscription or company support. Their approach does not mesh well with OPA's per capita subscription arrangements. It is unlikely that my association will remain part of OPA in 2007. As the chairman will have to change, I think that is best done soon.
Brian Marks
* Correct at the time when the report was written.
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"The forthcoming year will be an important one, as MPs turn the next opportunity for legislation into implemented regulations. OPA will be keeping up the pressure in all the areas that are of great concern to our associations." |
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