New Pensions Protection Fund
June 12 2003 - New measures have been announced by Secretary of State for Work and Pensions, Andrew Smith aimed at protecting members of pension schemes and making it easier for companies to run the schemes.
Following the consultation on the Pensions Green Paper, Andrew Smith said:
"We have listened to the pension scheme members, employers and the pensions industry - and it is now time for action.
"This balanced package strengthens protection for scheme members whilst reducing the burden on companies who run schemes. The new Pension Protection Fund will ensure that where company pensions have been promised, pensions will be delivered. I want to end the scandal of workers being denied the pensions they have built up over many years, or pensioners seeing their pension cut if their firm goes bust and their scheme winds up."
The new measures include:
* Pensions Protection Fund - first ever protection scheme for Defined Benefit pensions in the UK, protecting pension rights accrued when a company goes bust.
* Full Buy Out - ensuring that where a solvent company chooses to wind up its scheme it should fully buy out members' benefits.
* New Pensions Regulator - with new activity targeted on badly run and high-risk schemes putting consumers first and ensuring secure schemes continue without unnecessary regulatory burden.
* Changes to the Priority Order - guarantees remaining assets of a scheme in wind-up are distributed fairly among the workforce reflecting the length of service of employees.
The package is also aimed at radically simplifying pensions legislation and reducing costs on pension schemes through:
- a new scheme-specific funding requirement;
- changes to the contracting out regime;
- a reduction in the compulsory indexation introduced in 1997.
The government calculates that, overall, these proposals could save business up to £155 million.
Andrew Smith added:
"We want to make it easier for people to save and easier for companies to run good pensions schemes. I've taken a hard look at all the proposals made following the Green Paper and struck a balance between reducing costs on schemes while also providing new protection for people who work hard to build up pension rights.
"All partners must now rise to the challenge and work together to build pension provision in the UK."
Commenting on the government's pension proposals, Brendan Barber, TUC General Secretary, said:
"The TUC welcome the proposed introduction of a pension protection fund (PPF) to guarantee members a specified minimum level of pension if their employer becomes insolvent. We have been campaigning for a PPF for many years.
"The requirement on solvent employers who choose to wind up their pension schemes to meet their pension promise in full is an important move for members of occupational pensions, and will help to restore the pension promise made by employers. Previously employers who walked away from their commitment left scheme members high and dry.
"Whilst we recognise the need for a balanced package in a voluntary environment we are disappointed that the government has chosen to allow employers to cut inflation proofing for scheme members. This could result in workers in retirement seeing the value of their pension reduce significantly if we return to a period of high inflation. The need for compulsory contributions to pensions becomes more evident as we see the government trying to juggle with the voluntary approach. Long awaited pensions protections should not be paid for by reductions in benefits - we need more money in the pension pot.
"We are strongly opposed to any increase in public service pension schemes' retirement age from 60 to 65.
"We recognise that Section 67, which protects scheme members from any retrospective changes to their accrued pension rights is extremely restrictive, but believe that any relaxation would have to involve extensive consultation and negotiation with scheme members. We do not support the view that an employer should be able unilaterally to alter an accrued pension. There are already rules in place, which allow trustees to seek member's consent. We would welcome further discussions with government on any simplification of the arrangements under which schemes are restricted from modifying accrued rights."