From the TUC

Pensions progress

12 Jan 2010, by in Pensions & Investment, Politics

The TUC are big supporters of the new pensions settlement due to start in 2012. Ten years ago TUC policy that employers should have to contribute to the pensions of their staff was seen as a way-out demand. Now it constitutes a cross-party consensus backed by employers, unions and much of the pensions industry, thanks to Lord Turners’ Pensions Commission and some smart campaigning by unions and the wider consumer movement.

It is right therefore to mark two more milestones on the road to the implementation of the reform package.Last week the Personal Accounts Delivery Authority announced that the low cost pension scheme central to providing pensions for employers who do not want to make alternative arrangements for their staff will be known as the National Employment Savings Trust – or NEST for short. The ovoid background is the clue that what we have learned to call personal accounts will become nest-eggs by the time that people start saving in them. I think this works really well, and is part of a carefully thought through exercise in working out how best to get the target group of median and lower earners saving when the existing industry has largely failed.

Today the DWP have published the final batch of regulations that will make auto-enrollment a reality. As the TUC’s Brendan Barber said earlier:

“This is a major step forward in building a new and progressive pensions system based on the auto-enrollment of workers into pensions and compulsory employer contributions.

Millions of workers who have never had the chance to build up their own pension will now start to save.

No lobby group will have got everything they wanted today, but all have got a workable and balanced set of rules for the new system. Ministers and officials have done extremely well to maintain a wide consensus around these proposals and have not got the credit they deserve as it is rows that make the news, not agreement.”

As if to prove the last point the Liberal Democrat’s Steve Webb is leading the Press Association copy with an attack on the settlement.

Tens of thousands of employers are set to cut the contributions they make to their workers’ pensions as a result of the Government’s new pension reforms, the Liberal Democrats claimed today.

The party said it worked out that 42,000 employers will make reduced contributions under workplace pension reforms announced today. Steve Webb, Liberal Democrats’ work and pensions spokesman, said:

“Government boasts that its workplace pensions reforms will make everyone better off in retirement are fanciful. How will people be better off if their employers cut the money they put into their pensions? It is now more important than ever that we have a decent state pension that people can fall back on.”

I can’t find a release or blog post from Steve Webb explaining this figure. With his IFS background he certainly knows his DWP onions and is a progressive voice.  But I do not see how it is possible to calculate the impact of the new system on current employers with this much precision.

Currently there is no obligation on employers to contribute to pensions. It is entirely voluntary.

There has been a big decline in employer support for pensions since it peaked in the 1960s. It has accelerated in recent years, and has a number of factors driving it. Employers cutting contributions and switching from DB to DC hits the headlines, but the real story is that nearly two-thirds of the workforce are not saving in an employer supported pension at all.

Employers cut pensions to cut costs. There has been a big decline in the paternalistic employer who saw providing a pension as part of their duty as an employer.  Employees have not valued pensions enough when they rate a job, and while unions have effectively defended pensions in many employers, union organisation is not strong enough in many parts of the economy.

But employers always look for someone else to blame when they cut pension provision – normally the government.

No doubt some employers will now use the introduction of auto-enrollment as their scapegoat.  But most of them would probably have cut anyway. The rest of us however do not have to find the scapegoat guilty.

When auto-enrollment starts millions will start building up their first ever pension, either because they will be auto-enrolled into an existing scheme that they have not joined or because for the first time every employer will have to provide a pension. That is a prize well worth having.

Of course 2012 is not perfect. Steve Webb is right to say that we need a better basic state pension. Contributions under the new system are not high enough, and there are restrictions on NEST that should not be there – set out well in the David Pitt-Watson’s recent important work for the RSA on low cost saving. The extended timetable for implementation announced in the PBR was disappointing.

But 2012 is still a substantial historic advance. Its steps are all in the right direction. The new settlement is a much better foundation than what we have today for a decent pensions system.  The perfect can never be allowed to become the enemy of better – at least when it comes to pensions.

One Response to Pensions progress

  1. Nick Clark
    Jan 12th 2010, 9:09 pm

    Of course obliging employers to pay towards their workforce’s pension is a good thing. Unfortunately the contributions will all be put into a massive money purchase scheme, which will not guarantee any particular outcome (apart from more money for the City to play with). In fact, those retiring at a time when there’s an economic slump and low interest rates (not, seemingly, so unlikely) may get back less than they put in. What then? The real problem with pensions is that there is not a decent state scheme. Adding another risky punt to the mix – particularly one specifically aimed at those who cannot afford to lose – does not help.