Green Paper quotes which mislead people into believing their employer's pension is safe.

by Dr. Ros Altmann

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The following are quotes from the Government's recent Pensions Green Paper.  They all indicate that the officials who wrote the Paper do not realise that our pensions law does NOT protect pensions.  The quotes are highly misleading, and would suggest to people who belong to their employer's final salary scheme that their pension rights are safe.  In fact, if their employer becomes insolvent, they could lose all their pension (even in a scheme which was 100% funded at its last MFR valuation) and if the employer winds up the scheme while continuing in business, the current rules allow the employer to get away with paying only a fraction (often less than 40%) of the promised pension.  This situation undermines the whole of our pension system, will erode confidence if left unchecked and must be addressed as soon as possible. 

1.  Phrases which lead people to believe that their pension rights are protected by law: 

'People should be able to have confidence in the pension they have been promised' - Ian McCartney Foreword p.4 

'Legislation is there for a reason - to protect the pension rights of members.  We need to ensure that while simplifying the regulatory regime, we maintain consumer protection, trust and confidence'  p. 54 

'Accrued rights...are clearly protected under pensions legislation and this will remain the case' - p.55 Technical paper 

It is important 'to provide the stability and confidence that is so important and which members of pension schemes are entitled to expect.' - p.30 Technical Annex 

'It is clearly important that employers continue to honour their pension promise in relation to the rights that members have already accrued'. - p.30 Technical paper 

2.  Quotes which show that people are better off working for an employer who breaks the law, or is dishonest, because then their pensions are protected!  Why should pensions be protected when employers act illegally, but not when they act legally?

'People need to be protected against dishonesty' p.51 

'Propose to remove restrictions so that schemes with an insolvent employer can be compensated for the full amount lost as a result of acts of dishonesty' - p.51 

3.  Government tries to blame employers, but it is the legal framework which has allowed people to believe they are protected.  Even a scheme which is fully funded on the MFR can leave its members with no pension.  The employer will not have let their employees down if the funding level plunges due to market movements, but the law divides up the assets in an unfair way, so pensioners are fully protected and everyone else is not. 

'Employers have let their employees down when they have become insolvent with an underfunded pension scheme' p.2 

4.  Quote showing why the Government seems to have been afraid to actually protect pensions.  They are frightened of forcing employers to pay more.  But surely, if employers cannot afford the promises they have made, the members should be told! 

Government 'will be guided by the aim of not increasing the overall burden on employers providing pensions' - p.67 

5.  Quote showing that Government may need to accept some responsibility for compensating those who have lost their pensions as a result of the lack of protection in law.  The situation is similar to the mis-selling of personal pensions, wherein financial services companies were forced to spend billions of pounds compensating those who lost out by transferring their pension due to poor advice.  Government encouraged (even bribed with tax relief) people to put their money into their employer's pension and then prevented them from diversifying into any other scheme.  Government knew people believed their pension was safe, yet did nothing to warn people that this was not in fact the case. 

'Government's aim throughout has been to ensure that victims of mis-selling received redress as rapidly as possible... If a pension was mis-sold, and a loss incurred as a result, the firm must offer redress to restore their customer's financial position' - p.80

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