A submission from the Confederation of Occupational Pensioners Associations (COPAS) to the Future of UK Pensions inquiry, responding to the DWP's Green Paper

Your Select Committee has produced its Volume III: Memoranda Relating to the Enquiry. This collection of inputs to the Committee is packed with fact and informed opinion - it will be a lasting valuable source for all of us who are concerned about pensions.

The quickness with which Volume III was distributed emphasises the loss to the public that occurred when the similar amount of input to the Pickering Review was not put on record. We have pointed out in PEN08 of Volume III that many of the submissions to Pickering were concerned with the consumer viewpoint on occupational pensions, and these were ignored in the Pickering agenda.

This may explain why the Green Paper is similarly unbalanced. There are user oriented improvements foretold, and removal of the "cliff edge" of retirement will improve many lives, but the Green Paper falls short of the potential to restore a bonding between Government and governed on occupational pensions.

In this letter we argue that the public and the media are sensible in their judgement and that the apparent Green Paper view (that consumer protection mechanisms should be weakened and the problem lies with public ignorance and media exaggeration) is not. We use MNTs, Final Salary Schemes, Trust funds, and the Pensions Ombudsman as examples.

We can all endorse the idea of purposeful legislation but there are dangers when defining the purpose is in the wrong hands. The DWP says the "objective" and "desired outcome" of MNT legislation are "to allow scheme members to nominate some of their scheme's trustees". This is like saying that the desired outcome of a general election is to name 641 people. The purpose of a general election is to give the public some influence on how they are governed. The purpose of MNTs is to give members some influence in how their trust is managed.

As a result of so completely missing the point, the DWP offers an option of giving the company appointed majority amongst the trustees the power of totally unregulated appointment of members for the remainder of the board. This is the opposite of giving the members influence.

COPAS is a confederation of more than 40 pensioners' associations, founded a decade ago. We have never heard this dangerous proposal before. It was not in the Pickering Report.

As Parliament deregulates the UK pensions mechanisms, the role of MNTs to moderate problems away before they reach the regulators becomes even more vital. Legislation to make the MNT appointments "fair and open" is imperative - what sort of company would oppose that?

The needed outcome is, as the Government of the time said when MNTs were first introduced, to give members influence in the running of their schemes. A rule of a third rather than a half makes MNTs second class trustees and allows the company appointees to ignore and outvote them in the rogue situations where they matter most. The Green Paper ignores the needed change, although many of the inputs to Pickering proposed it.

In PEN50 the DWP argues that "It is not the Government's role to champion the cause of either Defined Benefit or Defined Contribution schemes" since "What matters is the level of contributions being made". This ignores the fact that the consumer, quite sensibly, is not so much concerned with gambling on more income later as with ensuring a satisfactory income later. Of course the level of contributions matters hugely, but by ignoring the issue of risk the DWP ignores the fact that Defined Benefit schemes are better for the consumer. The Government would be right to recognise this and encourage the better schemes.

The public, quite sensibly, believes that a trust and its funds are a third party, acting between the employer and the scheme members, to ensure that what was bargained for is eventually delivered. The public understands this concept. When you buy a house you transfer the money to a third party, and not directly to the seller. When you buy a flight ticket on the Internet from a company associated with a third party, you can pay before you get the ticket because the third party guarantees that you get the ticket if the company goes bust. The model of a trust that the consumer has is logical and implementable. The Government's espousal of the idea that companies can let trusts become under-funded by choosing not to contribute enough is a message that reinforces sensible public doubts about putting their savings into dubious mechanisms.

On this issue of under-funding the Green Paper says "The Government will be guided by the aim of not increasing the overall burden on employers providing pensions". Perhaps the Government needed to say this, to avoid a rush of closures in anticipation of consumer protection legislation, but it precludes the necessary solution. A "solution" to under-funding that does not ensure adequate funds can only redistribute the pain across different members and creditors, robbing Peter to pay Paul.

Scheme members can understand a number for the total assets of a trust (roughly what the assets would realise if sold) and can understand a number for the obligations (roughly the cost of buying their pension rights on the market). Any reporting of scheme status should include these two numbers annually. These are real numbers, not open to wild variation in response to parameters guessed at by employers, trustees and actuaries. The public is well aware that professionals under pressure, like Anderson accountants, are fallible. If the Government is not going to avoid under-funding it should ensure that members know the extent of it.

The regulators have not been prominent in protecting the interests of consumers. In cases like Blagden, Bradstock, CSW, IBM UK, and Maersk where pension promises have not been met or are under threat, the regulators have not (yet) been effective. Where the scheme members have had success, it is through strikes or the threat of strikes (Caparo), legal action (British Airways), or pressure by a members association (Thorn). In PEN08 we gave the reasons for the ineffectiveness of the Office of the Pensions Ombudsman, and what could be done to correct it. It is significant that the DWP description of the regulatory framework, at page Ev 242 of Volume III, does not mention the Ombudsman at all. Should we deduce that the DWP does not regard the Ombudsman as part of consumer protection, but rather as a public relations department taking the flak from consumers who have been wronged, and telling them that nothing can be done about it?

It is poor policy to ignore consumer interests, because anyone's hopes of cajoling the public into more pension saving will founder if the public does not believe that entrusting their money to the existing mechanisms is a sensible choice. The last words of Volume III go to the heart of the matter with admirable British understatement:

"Unless people perceive that their funds are going to be properly safeguarded they are likely to be reluctant to use a pension mechanism as a means of making adequate provision for their later years"

Dr Brian Marks, Chairman of COPAS