Deregulatory review of private pensions: BECTU response

5 April 2007

1. BECTU is the trade union for workers (other than performers and journalists) in the audiovisual and live entertainment sector. A large proportion of our members are in final salary pension schemes. We therefore have a close interest in the issues raised in the consultation paper. Our response focuses on our key general concerns.

   Reducing disincentives to final salary schemes

2. We share a concern that employers should not be discouraged from having final salary schemes. However, we believe that it is not the rigour of regulatory requirements which discourages the continuation of such schemes. Instead, we believe it is the overly conservative actuarial assumptions required (eg regarding longevity and investment returns) which have become a serious disincentive to the future of many final salary schemes.
3. We therefore believe that the remedy lies not in the area of lighter regulation but in allowing greater power for trustees to seek flexibility in the actuarial assumptions applied to their schemes.

   Risk sharing

4. We note the argument that employers are less willing to take the risks involved in Defined Benefit (DB) Schemes than in Defined Contribution (DC) Schemes.
5. However, in our experience, many employers with DB Schemes successfully withstand such risks and have, where necessary, made repair payments to remedy scheme deficits.
6. Our experience of such employers is that their key concern is not the repair payments for risks already borne but the level of ongoing employer contributions - which are linked closely to the actuarial assumptions used in pension scheme reviews.

   Maintaining protection for accrued pension rights

7. We strongly believe that the "appropriate degree of protection" for existing accrued pension rights is full protection at their present level.
8. Many final salary schemes have, in the recent period, already introduced reductions in future benefits (eg changing the accrual rate from 60th - 80th; changing the default retirement age from 60-65). We believe that the introduction of a further ability to apply retrospective reductions in benefits will be perceived as grossly unfair (indeed no different from the Equitable Life controversy) by scheme members.
9. We are certain that many employers would automatically take advantage of such an option regardless of whether the resulting financial savings would be significant. We do not believe that the resulting detriment to scheme members would be justified nor that the proposals would have the compensatory effect of making employers significantly more likely to maintain or extend DB schemes.

   National Insurance (NI) rebates

10. We advocate detailed consideration of increasing the level of the NI rebate for employers for pension schemes that are contracted out of the state scheme. We believe the current level of the rebate is inadequate and that a significant increase in the rebate could be a meaningful incentive for employers to maintain DB schemes.

    Conclusion

11. We welcome the debate on personal pensions. We hope that you will take note of our views - especially on the issue of actuarial assumptions and on the need to maintain accrued pension rights. We look forward to the further progress of the Review.