New regulations laid before Parliament
This time itís more pension regulations being laid in Parliament to change the pension rules from some time next month (looks like itís 10 May). Itís not been entirely unexpected though, as these follow on from the draft regulations issued in October last year. What theyíre changing is the Priority Order for the sharing out of pension benefits when a pension fund gets wound up. If a scheme is fully funded all of this wouldnít matter, but it is important if the fund is short of money and thereís not enough to go around.
At the moment, pensions already in payment get the first call on the schemeís assets and everybody else gets to scramble around for whatís left. This is all set to change when the Pension Protection Fund comes along, maybe next year, but Government felt it was important to do something in the interim to change the way funds are shared out. Under these new regulations pensioners still come first in the pecking order, but their rights to pension increases are dropping down the priority list.
Where there isnít enough to meet all the promises made the loss of expensive pension increases for those already retired will provide a bit more money to meet the pension promises made to those still at work or with deferred pensions in the scheme. Government estimates that many scheme members would stand to gain an increase to their pension of up to 20% in the event of their employer becoming insolvent before the protection fund is in place, so they reckon it will be a popular move that will keep people happy until then.
Obviously it wonít be that popular with retired staff who will then be left to face the future with pensions that effectively decrease in value with every year that passes as they go through their retirement years, but I suppose the Government types know that and donít need me to tell them. None of my business.
There was, if you remember, much talk last year about scheme monies on wind-up being shared out in an even Ďfairerí way, by ensuring that those employees with longer service would get a greater share of the available assets than those with shorter service.
Unfortunately, this did not see the light of day in terms of making it into the new regulations. While I was reading Hansard* the other night, my usual end to an otherwise perfect day, I came across the following response that Andrew Smith, the Secretary of State for Work and Pensions, made to yet another question from David Willetts MP back in March;
ďOn the priority order, I made it clear in last week's debate that we sought to pursue the solution originally advocated not by him but by my right hon. Friend the Member for Birkenhead (Mr. Field), which gave greater priority to those who had been in schemes for longer. After the consultation on the regulations, we found that the measure was not possible because such information does not exist for a significant proportion of schemes. We will introduce an amended priority order shortly that will give a higher priority to older members, and that is the truth.Ē
So, in October last year the Government proposed to amend the priority order giving a higher priority to those employees with longer service. In March they recognised that this could not be achieved and so indicated that they would be looking at some other way of achieving a fairer balance by giving a higher priority to older members.
Hmm! This clearly means that the Government types have not been able to do either!
So, a bit of a back-pedalling exercise by the Government and thatís the truth!
22 April 2004
This document is based on Scottish Lifeís understanding of the Statutory Instrument The Occupational Pension Schemes (Winding Up) (Amendment) Regulations 2004 number 1140 published on the 15 April 2004.
* The Hansard extract is taken from the 2 March 2004. This can be found on the United Kingdom Parliament website.