par Planet labor
As part of its pensions reform policy aiming at doing more savings, the Department for Work and Pensions (DWP) had asked two experts – Chris Lewin and Ed Sweeney – to carry out a study on the deregulation of private pension schemes, which was published on July 25, 2007. Now the government has to give its opinion on the measures these two specialists proposed. Mike O’ Brien, Secretary for Work and Pensions, announced a series of measures concerning the softening of the legislation enforceable to private pension schemes. “We think that these measures are a good compromise between encouraging employers to provide pension schemes and the need to maintain the advantages of the members of pension schemes”, he declared.
Two key-measures were announced:
* Reduce the cap on revaluation of deferred benefits for all pension rights accrued on or after a future date from 5% to 2.5%. In other words, an employee leaving his company before the required age to enjoy their rights to a normal pension will see their rights revaluated by a maximum of 2.5% a year. This cap, which corresponds to the increase on the retail price index, was of 5% since 1986. This measure would apply for pensions accrued from a future date.
* Introduce a statutory override to enable schemes to amend their scheme rules. This measure would notably make it easier to implement the previous measure.
The DWP does not intend to stop there: it also announced other propositions which will be submitted to the study as part of this simplification of pension schemes which it intends on continuing. The people concerned are, notably, employees leaving a workplace-based pension scheme, as well as some surplus benefit funds. The stakeholders may make any comments on all the propositions until November 15, 2007.
Pension funds are satisfied, unions are furious. The cap on the protection against inflation in private pension schemes is excellent news for pension funds because it would enable employers to save on the management of their schemes. Joanne Segars, leader of the National Association for Pension Funds (NAPF), expressed her satisfaction with the fact that the government listened to the association’s calls to reform the revaluation rules for deferred pensions. “These measures are going to support the future of pensions with defined benefit schemes, which provide millions of retired people with consistent income”. The trade union confederation TUC does not share this view at all; it considers that this measure is going to endanger workers who do not work all their life, such as women or people who take care of sick or disabled people. The government defended itself by saying that these pension schemes have been increasingly costly for companies, especially during the last decade, notably because of the legal obligation to index the amount of the deferred pension to the inflation rate. Most defined benefit schemes thus had to be closed to the newly arrived. Certain organizations are even asking for the total suppression of this indexation, which the government refuses, judging that the 2.5% amount is a fair balance.
e-europnews, October 29, 2007, No. 070892 – www.eeuropnews.com