ier seminar
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IER Seminar. Defending occupational pensions in the private sector Bryan Freake – Unite Pensions Officer. Why members want defined benefits and final salary. They are perceived as quality schemes They give a clear idea of what pension will be when you retire The employer takes the risk. - PowerPoint PPT PresentationTRANSCRIPT
IER Seminar
Defending occupational pensions in the private sector
Bryan Freake – Unite Pensions Officer
Why members want defined benefits and final salary
• They are perceived as quality schemes
• They give a clear idea of what pension will be when you retire
• The employer takes the risk
When is DB not DB
• When pension increases are discretionary ?• When pensionable pay is interfered with ?• When pension is adjusted for mortality ?
• Changes like this have the scope to halve the value of the members pension
• Members may have little idea what they will get
Collective DC Schemes
• A DB scheme which allows the employer to fix their cost is a collective DC Scheme
• If pension increases became discretionary and benefits could be directly adjusted for longer mortality
• These changes are calculated not just to deal with inflation and mortality risk but also to cover investment risk
The enemies of DB ?
• Actuaries – who allowed the boom and failed to protect us against the bust
• Accountants – who have destabilised company accounts – and may go further with a risk free liability assessment
• Pension Consultants - who started the rush to Dc and overlooked alternatives
Who else can we blame ?
• The Government – as much good as there has been bad
• The Markets – inevitably but perhaps not deliberately
• Employers – are they justified in breaking their promises
• Pensioners –outstaying their allotted span
The Tory threat
• Pulling up the public sector anchor
• Raising State Pension Age quicker
• Taking de-regulation of pension increases further
• Allowing mortality to impact past service
Lets look at some Hybrids
• Barclays
• Unilever
• BAe
• Johnson Matthey
Barclays
• 3% contributions for 20% ‘cash balance’ at age 60
• Cash balance revalued at RPI + up to 2% based on investment performance
• Plus a DC element with a match of up to 3% for 3%
• Contracted-in
Unilever
• New entrants scheme• 5% for a 1/60 CARE benefit at age 65 on
salary between £4500 - £38,000• CARE revaluation RPI up to 5% - upper
salary threshold linked to Unilever pay increases
• Company pays 12.5% salary /pension allowance on pay above £38,000
BAe 100
• New entrants scheme
• 1/100 final salary benefit
• 2% credited to DC account
• Member contribution 4%
• Longevity adjustment factor
• Contracted-in
Johnson Matthey
• Non-contributory 1/80 CARE scheme benefit at age 65
• Employee contributions matched in DC supplement to a maximum of 3%:3%
• Contracted-in
Hybrids that did not last
• Action for Children
• Alstom
• Goodyear
• Smiths
• De La Rue (proposed closure)
DC schemes paying at least 10%
• Akzo Nobel, AMP, Aviva
• BAA, BOC, Diabetes UK
• Finn Mechanica, Friends Provident, HSBC
• L&G, National Grid, NFU Mutual
• Phillips, Prudential, Reckitt
• Rolls Royce, RSPCA, Siemens
Transitional Compensation
• Steria – DC contributions individually targeted to have a reasonable chance of replicating previous DB benefits
• Fujitsu – (proposed) – 5% uplift in salaries to compensate for switch to a 5%:10% DC scheme
• Siemens – DC with matching up to 10%:10% with special contribution supplement for 15 years at maximum declining from 10% to 5% over the period
Where are we Going
• 80% of DB schemes closed to new entrants compared to 20% in 2000
• 20% closed to further accrual by existing members and rising more rapidly
• Current law allows plenty of scope for risk sharing
• Increasing flexibility may only accelerate the decline in scheme quality
Resisting the Tide
• Employers are forced now to consult
• We must make them negotiate
• There is always scope for a better deal
• Unite is pledged to support members prepared to take action to defend their pensions