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BeeHive  >  BeeLines  >  What’s happened so far in February?

What’s happened so far in February?

Phew! What a busy month!  I’ve never seen so many press releases about pensions flying around. In fact, there’ve been so many of them that I really can’t reproduce them all here. So I’ve picked just a few of them so that you can see how the many-faceted pension debate in our country is shaping up and who’s saying what.

First off, back on the 2nd of the month we heard from the Transport and General Workers' Union that Harrods, the world famous store, has announced that it is going to close its final-salary pension scheme. That added to the depressing start to 2006 on the pensions front that we saw in January with the announcement of a number of scheme closures from top UK firms. The CBI waded into the debate on the 6th of the month saying that the Regulator’s new scheme funding rules posed a serious threat to corporate cashflow - another side of the same coin really. The National Association of Pension Funds (NAPF), however, looked at the same topic from a completely different angle and published a press release on the 7th of February outlining a new dispute service it is providing to help trustees stuck between the conflicting interests of scheme members and employers.

On the same day, the Department for Work and Pensions (DWP) published the text of an important speech that John Hutton, the current Secretary of State for Work and Pensions, made at the Work Foundation on the thorny subject of further pension reform. It was a long speech covering a number of grand themes and prompted the release of a very short press release from the Conservative Party that evening that pointed out that while it’s interesting to know what John Hutton thinks, it’s more important to know what Gordon Brown, the Chancellor, is prepared to pay for. Quite! The DWP, meanwhile, put out another press release pushing the notion that debate is essential for lasting pension reform. Mind you, given the level of the debate and the fact that two-years would be seen as ‘lasting reform’ if the track record of the last twenty years is anything to go by, I suppose it’s hardly worth getting too bothered about it all, but that’s just me being a neg again, so ignore that comment.

The Financial Services Consumer Panel chose the 8th of the month to tell us it has written to the Financial Services Authority saying that the proposals made by the Turner Commission (to bring in a National Pension Savings Scheme) could mean a rethink would be needed about doing away with the RU64 rule. They see mis-selling rearing its ugly head again if we’re not careful with implementing any new pension reforms. Lord Turner’s Commission itself put out a press release on the 9th outlining the criteria that would need to be used to assess any alternatives to the NPSS, but said the Commission would not be commenting on any alternatives proposed until the end of March. Which? put out a release on the 9th too pointing out that the NPSS would be much better for people than anything currently available from the pension industry, and the ABI published its proposals (on the 10th) for the Pensions Commission not to comment on with the unveiling of its own model for pension saving called ‘Partnership Pensions’.

As if to bring us all back to thinking about what is rather than what might be, the Pensions Regulator continued the trick of hitting the ground running by pointing out on the 14th of the month that its new Codes of Practice come into effect on the 15th. As I said at the beginning – Phew!

The press releases are all here in the usual format. You can just click on the ones you want to read from the list below and you’ll be magically transported right to where you need to be. On the other hand, you can just read the lot if you want to. It’s completely up to you, I’m easy on the whole thing.



Date released: 02 February 2006

Harrods catches up with pension cuts fashion

Date released: 06 February 2006

Pension Regulator's new funding rules risk damaging squeeze on corporate cashflow

Date released: 07 February 2006

New service will help pensions trustees “stuck between a rock and a hard place”

Date released: 07 February 2006

Hutton speech at Work Foundation

Date released: 07 February 2006

Hammond: John Hutton needs Brown’s backing for pensions

Date released: 07 February 2006

Debate essential for lasting pension reform

Date released: 08 February 2006

Removal of FSA rule would open up new pensions mis-selling warns Consumer Panel

Date released: 09 February 2006

Pensions Commission outlines criteria for assessing alternative pension saving scheme

Date released: 09 February 2006

Average earners will be £15,500 better off under NPSS, says Which?

Date released: 10 February 2006

'Partnership Pensions' - The ABI's new model for pension saving

Date released: 14 February 2006

Scheme funding code of practice comes into effect


Organisation: Transport and General Workers Union

Date released: 02 February 2006

Harrods catches up with pension cuts fashion 1

Harrods, the world famous top people's shop in London, has shocked its workforce today by telling them their pension arrangements will change dramatically from 6th April this year.

The 1,500 current members of the scheme are being told that a deficit of £111m has proved too much for the company and so from the new tax year they will be paying into a money purchase scheme as the final salary scheme is closed.

The Transport and General Workers Union, which represents the warehouse and distribution staff across the store's London operations, said there was an added blow as the maximum employer contribution would be almost halved.

Madeleine Richards, T&G regional industrial organiser, said Harrods' staff have been told in a private letter that the store will pay in £90m over the next ten years and any further contributions as necessary to make good any deficit but that continuing with the scheme represents an "unacceptable future risk."

"This has come as big shock to our members and they are extremely concerned for their future," said Ms. Richards. "Many of the staff are loyal, long-serving employees because of the pension but that prop has been knocked from under them."

Ms. Richards said the friendly tone of the company's letter belied the disappointment many would feel. She highlighted the new contribution levels which made clear that if employees contribute 2% or more the company would contribute 4% and if employee contributions reached 5%, the company would put in 8%.

"What is proposed is an almost halving of employer contributions from the current 15% maximum," said Ms. Richards. "It is small wonder people have raised their concerns with us. The T&G will be looking for an urgent meeting with Harrods as soon as possible."

Harrods has a total of 6,541 in the pension scheme as current members, pensioners and deferred pensioners. There are currently 1,500 current members who will be directly affected by this move. A series of staff meetings have been notified for the remainder of this week to formally announce the changes ahead of a consultation exercise.

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Organisation: CBI

Date released: 06 February 2006

Pension Regulator's new funding rules risk damaging squeeze on corporate cashflow 2

The Pensions Regulator’s approach to new funding rules for defined benefit pension schemes risks plunging one in five UK companies into a cashflow crisis and could nullify the gains of a new scheme specific funding standard, the CBI warned today (Monday).

New pensions funding rules came into force in December 2005 which should allow trustees and employers to agree funding arrangements that match the individual circumstances of the scheme. The new funding rules replace the old Minimum Funding Requirement (MFR), which was widely seen as inflexible and unhelpful.

The CBI’s major concerns are:

Funding Levels: There is a real danger that the Regulator’s funding triggers will be automatically used by trustees as fixed ‘norms’, ignoring firms’ individual circumstances, effectively introducing an industry-wide funding measure by the back door.

Recovery Periods: The Regulator must be more flexible. The implied upper limit of ten years will deprive one in five firms of vital cashflow. The Regulator must allow recovery periods of up to 15 years for firms in a strong financial position.

John Cridland, CBI Deputy Director-General, said:

"Business called for a new scheme specific funding standard for pensions – but without significant improvements to the Regulator’s proposals, trustees could see this as MFR mark II and we’ll be back at square one.

"The Regulator’s proposals to use triggers as a way of identifying those schemes at most risk of not meeting their liabilities are welcome.

"But the proposed triggers are too rigid and the Regulator has got to ensure that trustees realise that the triggers are not hard and fast rules that need to be stuck to come what may.

"As it stands, trustees will feel compelled to make companies adopt aggressive new funding plans – regardless of the impact on the business – or on scheme members."

The CBI, in its response, welcomed the Regulator’s proposals to use triggers in its risk-based approach to regulating new scheme funding rules.

But to ensure trustees do not interpret the new rules as a new stringent funding regime, the CBI believes proposals must be improved by:

  • changing the recovery period trigger to a range of 10-15 years, with a particular emphasis on the financial strength of a scheme’s sponsoring employer;
  • removing "buy-out" as a target for funding – FRS 17, PPF liabilities and IAS 19 are sufficient;
  • providing more detailed guidance on when the Regulator will intervene to change a scheme’s funding plans;
  • providing greater clarity on how companies will be able to make use of contingent assets in its new funding rules.

Mr Cridland continued:

"If the Regulator gets this wrong, it could have the perverse effect of throttling private sector investment, thereby damaging the UK economy – putting the very pension schemes the Regulator is trying to protect under even more pressure.

"The Regulator’s own figures suggest that one in five UK companies are likely to see their cashflow dry up unless they can come to a sensible agreement with their trustees. This would put twenty per cent of UK companies out of business and cannot be the way forward.

On recovery periods, Mr Cridland added:

"Business accepts there should be a period of time in which a scheme should eliminate any shortfalls in its target funding levels.

"But under these new proposals, companies with a strong credit rating could be expected to make good their deficits over ten years even if this causes a severe cashflow problem.

"This is simply not acceptable – financially stable companies must have flexibility to plan how to invest their own funds and reduce their pension deficit in a way that fits their financial position and business plans.

"A recovery period trigger set over 10-15 years, would encourage trustees to agree to this."

On funding levels, Mr Cridland said:

"The Regulator has rightly identified FRS 17 and PPF liabilities as being appropriate risk measures when it comes to funding levels.

"But trying to attach a percentage of "buy-out" is an unnecessary hurdle and the Regulator should remove any link to buy-out in its guidance."

According to the Regulator's own figures, eliminating FRS 17 deficits over a 10 year period could use up:

  • 100 per cent of free cash flow for 20 per cent of firms;
  • 25 to 100 per cent of free cash flow for a further 10 to 15 per cent of companies.

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Organisation: The Pensions Mediation Service

Date released: 07 February 2006

New service will help pensions trustees “stuck between a rock and a hard place” 3

The National Association of Pension Funds (NAPF) has partnered with the leading alternative resolution service provider, CEDR (Centre for Effective Dispute Resolution), to provide a valuable new mediation service for its members.

Under the new regulatory regime for UK pensions, trustees could potentially find themselves at the centre of conflicts between the interests of sponsoring employers and scheme members. Disputes could arise over such issues as the need to make changes to schemes where there is pressure on costs, the payment schedule for plugging deficits, and concerns over scheme administration. The new Pensions Mediation Service is a viable means of resolving disagreements and complaints, and is available to all NAPF member schemes at a discounted price.

Importantly for pension schemes mediation does not provide a 'right' or 'wrong' decision but produces an agreement from both parties that can enable them to carry on a formal relationship. The service is completely independent, and all mediations and outcomes are treated confidentially.

Use of the Pensions Mediation Service is not dependant on having a formal dispute or requiring a formal mediation, as a number of other resolution options are available. CEDR Solve and NAPF have also committed to run a number of training modules and seminars on negotiation skills, conflict management and mediation awareness for their members.

Anyone may approach the Pensions Mediation Service at any stage, when a dispute first arises, or even when complaints or other proceedings have already been started. To contact the scheme visit online, email or call 020 7536 6060.


About CEDR
CEDR is an independent non-profit organisation supported by multinational business, leading professional bodies and public-sector organisations. Its mission is to encourage and develop mediation and other cost-effective dispute resolution and prevention techniques.
CEDR Solve is the dispute resolution and prevention arm of CEDR, with over 15 years unrivalled experience in helping parties resolve disputes in over 11,000 cases, it is recognised as the UK’s leading commercial mediation provider.

About NAPF
The NAPF is the leading voice of workplace pension provision in the UK. Some 10 million working people are currently in NAPF Member schemes, while around 5 million pensioners are receiving valuable retirement income from such schemes. NAPF Member schemes hold assets of some £750bn, and account for over one sixth of investment in the UK stock market.

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Organisation: Department for Work and Pensions

Date released: 07 February 2006

Hutton speech at Work Foundation 4

The Rt Hon John Hutton MP

Secretary of State for Work and Pensions

The Work Foundation Pensions Conference

Tuesday 7th February 2006

I’m grateful to Will and the Work Foundation for the opportunity to join you this morning. And I’m very pleased that the Work Foundation is holding this Pensions Conference – because ultimately the opportunity to work will underpin any successful pensions policy and it must play a central role in the way that our society responds to the challenges we face today.

Since 1997 we’ve taken decisive measures to address the most immediate and serious problems that we have faced since coming into office.

Through the Winter Fuel Payment, free TV licenses and a 7% real terms increase in the Basic State Pension, we’ve helped all pensioners. And by targeting resources through the Minimum Income Guarantee and then the Pension Credit, we’ve ensured help for the poorest pensioners; that never again will they have to suffer the indignity of living on as little as £69 a week – a shameful legacy of pensioner poverty to which we must never return. Today we are spending almost £11 billion extra each year on pensioners with almost half of this spending going to the poorest third. And we’ve succeeded in helping nearly 2 million pensioners escape from the poverty line – with figures from the Institute for Fiscal Studies showing that we are now in an almost unprecedented position where pensioners are no more likely to be poor than any other group in society.

The Pension Protection Fund and the new Pensions Regulator are helping to respond to the problems experienced by defined benefit occupational pensions – and acting to boost security for scheme members. The Financial Assistance Scheme offers the prospect of help for those who have lost the most in the past. And the introduction of the Sandler suite and Stakeholder Pensions have been important steps in facilitating low cost private savings.

But we must now go further to build a system that will enable us to meet two significant challenges. Firstly, unprecedented demographic changes where there will soon be more people over 80 than under 5; and secondly, the extent of under-saving, which the Pensions Commission calculated as leaving nearly 10 million people not saving enough for their retirement.

Work is key to meeting both of these challenges. If we are to support an ever-ageing population successfully we need all those who are willing and able to work to do so. That’s why our Welfare Reform Green Paper last month set out to meet our ambition of an 80% employment rate – including encouraging and supporting an extra 1 million older workers into the workplace. And, as the Pensions Commission concluded, a major expansion of workplace savings must be fundamental to meeting the problem of undersaving – perhaps now the biggest issue we face as we look to the future.

You’ve heard from Lord Turner already this morning. His report at the end of last year marked a major new phase in the debate we are now having about the long term future of our pensions system. We believe that the framework of proposals and options set out in the Pensions Commission report is the right basis for this debate – the analysis is comprehensive and thorough; the recommendations radical and far-reaching. It provides us now with an opportunity to build consensus on the direction of travel we should take.

And that consensus is crucial. If we are to lay the foundations for a lasting pensions settlement, we need a system that allows people to plan with confidence – one that will stand the test of time and not be pulled apart by successive Governments. We need to take difficult long-term decisions with not just cross-party support – but underpinned by an enduring national consensus. Because when it comes to pensions, almost by definition, we have to build for the long term.

That is why we are engaging in a National Pensions Debate – reaching into every section of our community – from business and industry to individuals of all ages and backgrounds; and in all parts of the country.

We all face a challenge here. Business and industry must facilitate workplace saving. Government must determine the right role for the State in providing a basic pension, in regulating the savings market and correcting inequalities. Individuals must plan their retirement saving. And as citizens, we must all be involved in deciding the trade-offs and making the choices that are inescapable if we are to succeed in laying the foundations for a new pensions settlement.

In the coming weeks we will be addressing all these issues in the build-up to a National Pensions Day. Later this month there will be regional events in Southampton and Manchester. Industry, Government and, I hope the main political parties, will come together on Tuesday 28th February for an examination of alternatives to Lord Turner’s National Pensions Savings Scheme – in which the industry have responded to the challenge laid down by my colleague Stephen Timms, the Minister for Pension Reform - to design a better model for personal accounts and deliver a simple, portable and flexible product that can enable people to save at low cost.

And in March I will use a series of speeches and events to set out some thoughts on the role of the State, the challenge for employers, questions of affordability, the options for improving the position of women’s pensions; and the trade-offs and balances that we are going to have to strike to achieve a long-term solution which meets my five tests of personal responsibility, fairness, affordability, simplicity and sustainability.

All this activity will culminate with the National Pensions Day - on Saturday 18th March - an innovative consultation taking place simultaneously in 6 cities – Birmingham, Newcastle, Glasgow, Swansea, Belfast and London. Over 1000 people will come together to consider the choices and options resulting from Lord Turner’s report – to build the platform for a nationwide consensus on which we will build our Spring White Paper and ultimately the legislation that will deliver a long-term solution to the Pensions challenge.

I would like to use the remainder of my time this morning to address one of the most difficult issues which will need to be at the heart of that nationwide consensus – namely the length of working lives and the question of the State Pension Age.

In his report, Lord Turner suggested that the State Pension Age should rise broadly in proportion to the increase in life expectancy.

Certainly there is a growing recognition that working longer is going to have to be part of the solution. But the idea of having to work longer is an emotive subject – we’ve all seen the scare stories and the newspaper headlines.

We’re not alone in grappling with this question – the ageing population is a truly global phenomenon for all of the developed economies. In the US the pension age has already started increasing and will reach 67 in 2027; it’s increasing in Japan from 60 to 65. And it has recently been increased in 6 EU countries including Austria, Slovakia and the Czech Republic. I do not believe the UK can remain immune to this process of change.

What matters of course is the effective retirement age – and it’s worth just dispelling a few myths. Although the State Pension Age is a strong signal and determinant of the length of working lives – it’s not the same as a retirement age. Many retire before the State Pension Age – and increasingly others choose to work beyond it.

Our Age Positive Campaign has influenced employers by promoting the business case for age-diverse workforces and this year will see the introduction of legislation which, for the first time, will give people the right to challenge age discrimination in the workplace. A new default retirement age will mean that employers can no longer force an employee to retire before 65, without objective justification. And in 2011 we will undertake an evidence-based review which will consider the abolition of the default retirement age altogether.

What’s striking when we look at effective retirement ages is that there has been a seismic shift in the balance between the proportions of life spent in work and retirement. In 1950, the average male retired at 67 and could expect to spend 10.8 years in retirement. Today he retires on average 3 years earlier - at 64 - but can expect to spend a further 20 years in retirement. Growth in life expectancy at 65 also shows no sign of slowing down. Every year between 1975 and 2005 it grew by 3 months for men and 2 months for women. By contrast between 1950 and 1975 the annual improvement had been of slightly more than half a month for men and less than a month and a half for women.

As unpopular as it may be to talk about working longer – the simple fact is that if we aren’t prepared to consider the option of increasing the state pension age, we will simply pass an ever greater burden onto our children and grandchildren.

Of course there are concerns about the impact of this on sections of the community. There are issues that have to be worked through – but in principle it would be irresponsible for us now not to at least contemplate some redressing of this balance between work and retirement.

Looking at the data and available research on current retirement patterns, I think three things really stand out.

Firstly, with a third of men outside the labour market by the age of 60, for many the debate is not about working beyond 65 but actually having the opportunity to work up to the State Pension Age. There are 8.8 million people aged between 50 and the State Pension Age in private households in Britain. Of these, 2.6 million – nearly 30% - are not working. And 1.4 million are claiming sickness and disability benefits.

Secondly, while life expectancy has risen across the country, it can vary considerably between more and less deprived areas. For example, in the local authority with the highest life expectancy at birth, namely Kensington and Chelsea, average male life expectancy is 11.5 years higher than in the local authority with the lowest, Glasgow.

And thirdly, flexibility is key. A recent research study has found that for 50-69 year olds, most of those in work wanted to carry on working and half of those who were retired would have worked for longer if there had been part-time or flexible work options available.

So what does this mean for pensions policy. Let me suggest a few thoughts.

Firstly, with half of those on Incapacity Benefits aged over 50, last month’s welfare reforms have a crucial role to play in meeting the pensions challenge and in helping those who can and want to work to do so. And of course, the Green Paper also included other important measures to help older workers – with an extension of New Deal 25+ to those aged 50-59; improved back-to-work support for JSA claimants and their dependent partners who are over 50; and more work with employers to extend flexible working opportunities to older workers.

Secondly, we can not look at pensions policy in isolation from wider policy on health and education. While I'm committed to looking at whether there are ways within the pensions system in which we could address inequalities in life expectancy – this would come at a cost of additional complexity and we have to ask whether the pension system could and should address these problems. There is strong evidence that differences in life expectancy are driven by differences in health and education. We’re already working towards a significant reduction in mortality rates by 2010 and a reduction of at least 10% in the gap between the fifth of areas with the lowest life expectancy at birth and the population as a whole. Tackling pensioner poverty today has been our top priority. Tackling it tomorrow – means that pension reform can not be conducted in isolation from whatever measures are necessary to address inequality in life expectancy.

Thirdly – and finally – we need to do all we can to ensure greater flexibility. The 2004 Pensions Act is helping to achieve this flexibility with more generous options for delaying taking up the State Pension and the tax change coming in this April will allow people to take up their occupational pension while continuing to work for the same employer.

These measures combined with the age discrimination legislation I mentioned earlier, will give employees greater flexibility to plan a gradual move from full-time work to retirement. But we can and should look at whether there are other ways to increase this flexibility further. For example, looking at whether there are workable ways to make State Pension Deferral more flexible such as the Pensions Commission proposal to allow people the option of deferring some of their State Pension rather than all of it.

My view is that some increase in the State Pension Age from 2020 is now inevitable. But any rise will only be acceptable to people if it comes as part of a package to improve pension provision in other key areas that Lord Turner’s report addresses. And we must keep in mind that the State Pension Age is a fairly blunt tool for changing effective retirement ages. It can only be one part of the policy response. It needs to be accompanied by tailored support to help people back into work; by greater flexibility to help people plan a gradual move that breaks the cliff-edge between work and retirement. And it can not be considered in isolation from our health and education policies which must support our welfare priorities of tackling poverty and eliminating disadvantage.

Ultimately, increasing the effective retirement age can only be achieved when it is underpinned by a broad consensus about whatever long term pensions settlement we need for the future. One that meets our goals of promoting greater personal saving as well as reducing financial hardship in retirement.

Public attitudes are absolutely crucial - but they must be shaped by the reality of the challenges we face. Any change needs to be seen less as an imposition that forces people to change their behaviour and more as a reflection of the new expectations of individuals and communities in a changing society.

That’s why we are having this National Pensions Debate. I look forward to hearing your thoughts this morning and over the coming weeks. Together we can build that enduring consensus and ensure that we take the right long-term decisions to deliver a lasting pensions settlement for our children and grandchildren - and for the generations to come.

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Organisation: Conservative Party

Date released: 07 February 2006

Hammond: John Hutton needs Brown’s backing for pensions 5

Commenting on John Hutton’s announcement that a higher state pension age will only be acceptable alongside a more generous state pension, Philip Hammond, Shadow Work and Pensions Secretary, said:

“It remains to be seen how Gordon Brown will react to this declaration from John Hutton. The Chancellor has already undermined Lord Turner's report and has positioned himself as the roadblock to pension reform.

“The Chancellor has suggested that the £10bn a year saving from the equalisation of the women’s pension age may not be available to finance more generous state pensions. This would certainly risk undermining John Hutton’s assertions.”


Notes to Editors

The Secretary of State, John Hutton, was speaking at the Work Foundation this morning.

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Organisation: Department for Work and Pensions

Date released: 07 February 2006

Debate essential for lasting pension reform 6

John Hutton today revealed further plans to ensure people’s buy-in to future pension reform. Speaking at the Work Foundation, he announced that as part of this process of debate the National Pensions Day will be held on 18 March in six cities across the UK – Belfast, Glasgow, Birmingham, Swansea, Newcastle and London.

Mr Hutton also made clear that in his view an increase in the State Pension Age from 2020 is inevitable and that to ignore this fact will simply pass a greater burden onto future generations.

Mr Hutton said:

" An increase in the State Pension Age will only be acceptable to people if it comes as part of package to improve pension provision in other key areas that Lord Turner’s report addresses. It can only be one part of the policy response. It needs to be accompanied by tailored support to help people back into work; by greater flexibility to help people plan a gradual move that breaks the cliff-edge between work and retirement.

"Ultimately, increasing the effective retirement age can only be achieved when it is underpinned by a broad consensus about whatever long term pensions settlement we need for the future; one that meets our goals of promoting greater personal saving as well as reducing financial hardship in retirement.

"Public attitudes are absolutely crucial – but they must be shaped by the reality of the challenges we face. Any change needs to be seen less as an imposition that forces people to change their behaviour and more as a reflection of the new expectations of individuals and communities in a changing society.

"That’s why we are having this National Pensions Debate. I look forward to hearing many different views over the coming weeks. Together we can build that enduring consensus and ensure that we take the right long-term decisions to deliver a lasting pensions settlement for our children and grandchildren - and for the generations to come."

John Hutton outlined the themes of upcoming events that will form part of the National Pensions Debate: the role of the State, the challenge for employers, the options for improving the position of women's pensions and the trade-offs and balances that will have to be struck to achieve long-term reform

Notes to Editors

  1. A joint event with Government and industry representatives will be held on 28 February to look at industry’s alternative proposals to the National Pensions Saving Scheme suggested in the Pensions Commission Report.
  2. The National Pensions Day will be the largest event of its kind ever undertaken in the UK. It will involve over 1000 people taking part in simultaneous, satellite-linked consultation events in six cities across the UK – Belfast, Glasgow, Birmingham, Swansea, Newcastle and London.

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Organisation: Financial Services Consumer Panel

Date released: 08 February 2006

Removal of FSA rule would open up new pensions mis-selling warns Consumer Panel 7

The Financial Services Consumer Panel has today written to the FSA to warn them that the impact of the proposals from Lord Turner in the 2nd Pensions Commission report would mean that if the FSA removed its rule on suitability of personal pension advice, there will be a large potential for mis-selling.

The FSA is currently considering the responses to its consultation CP 05/08**, that proposed removing the rule commonly known as RU 64, which essentially requires all types of adviser (tied as well as whole of market) to explain in a suitability letter, why the personal pension recommended is at least as suitable as a lower charge stakeholder pension.

The Pensions Commission's 2nd Report recommends a new National Pensions Savings Scheme (NPSS) offering low and middle earners the opportunity to save at low cost. The Panel warns the FSA that this will have implications for the suitability standards for advice on personal pensions in both the short and long term. In the long term, it will increase the need for an RU64 type rule, as lower charges on an NPSS pension would need to be taken into account in assessing suitability.

Even more worrying is that in the short term, when the introduction of NPSS is on the horizon with no RU64 in place, some financial services firms could decide to push personal pensions at people in the last few years before NPSS. This could mean a new round of mis-selling, causing consumers not only to take on a pension that is more expensive than they need, but might also make them ineligible for the NPSS (or make them disinclined to join it) when it is introduced.

John Howard, Chairman of the Financial Services Consumer Panel said:

"We believe that if the industry cannot justify selling personal pensions at a higher price, and is allowed to avoid the obligation of telling consumers about cheaper stakeholder products, this will be tantamount to mis-selling on a significant scale. So the industry and the regulator should brace themselves for widespread claims for mis-selling in the future, unless this rule is retained."

The Panel also uses the letter to the FSA to dispute claims by the industry that this is the FSA controlling prices, because even with this rule, advisers are not prevented from selling other pensions with higher charges than stakeholders.


  1. The details of the FSA's proposals are in its consultation paper CP 05/08**, available on its website - The letter that the Panel has written to the FSA follows on after these notes to editors.
  2. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.
  3. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. More information about the Panel's work is available on our website –
  4. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.
  5. There are currently eleven members of the Panel as listed below (for further information on individual members, see our website –

John Howard (Chairman)
Adam Phillips (Vice Chairman)
Caroline Gardner
Harriet Hall
Tony Hetherington
Stephen Locke
Nick Lord
David Metz
Paul Salvidge
Robert Skinner
Carol Stewart

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Organisation: Pensions Commission

Date released: 09 February 2006

Pensions Commission outlines criteria for assessing alternative pension saving scheme 8

Adair Turner today outlined the key factors to consider in assessing the different models for low cost pension savings which different industry groups will propose on Friday as alternatives to the National Pensions Saving Scheme (NPSS).

Speaking at the CBI Scotland "Tough Choices?" conference, Lord Turner stressed that there was likely to be much consensus on the way forward.

"Almost everybody in this debate now accepts that we need radically to reduce the costs of delivering pensions, giving everybody the opportunity to save at the low costs currently enjoyed by public sector employees, by employees of large companies and by high income individuals," said Lord Turner. And there is agreement that to achieve low costs requires the elimination of the costs of setting up individual schemes and conducting individual "advice" interviews, and elimination of contract proliferations as people move between jobs.

But different schemes to achieve those objectives will now be proposed by the Association of British Insurers, the National Association of Pension Funds and the Investment Managers Association, and other industry groups, and those alternatives will need careful assessment.

In making that assessment, Lord Turner said, there were two "red herrings" which simply confused the debate:

  • The first concerns "nationalised" savings. "The debate is sometimes described as one between a market based and a nationalised approach. So let's be crystal clear - the NPSS the Commission has proposed does not involve a national direction of saving. It creates individuals accounts, which are the legal property of each individual, and which are invested in different asset classes at the individual's instructions. Any argument that the NPSS is a system of nationally directed savings should be dismissed as a misleading contribution to an important debate."
  • The second relates to the risks to government if the default fund in the NPSS does less well than hoped, or delivers different returns to different generations of pensioners. Lord Turner recognised that any system of encouraged saving with a default fund might create some risk of criticism of the government, but pointed out that these risks might be greater in any system where people are encouraged to save and allocated to different providers: "There is no nil risk approach, but the NPSS as proposed would certainly be no riskier to government than the alternatives."

Instead of these issues, Lord Turner suggested four which need to be looked at in detail:

  • Costs: the systems which involve choice or allocation between different providers are likely to involve somewhat higher costs: "But the key issue is how much more - a few hundreds of a per cent, a tenth of a per cent, or a full quarter per cent."?
  • Choice: the models proposed by the ABI and the NAPF are likely to involve employers or employees choosing between different insurance companies of trusts, with an automatic allocation process for those who do not choose. "The questions to which we need detailed answers are: what is the process by which choice will be made: How valuable is that choice; and can that choice be well-informed."
  • The possible benefits of competitive insurance companies or trusts encouraging people to save more, balanced against danger that a selling role might have to be regulated, thus adding costs.
  • And the benefits of competition in achieving operational efficiency, where the choice was between two alternative forms of competition: "competition between alternative companies or trusts, with customer choice perhaps providing a stimulus to efficiency improvement" and "competition between private operators competing for an outsourcing contract to run the NPSS, which contrary to another "red herring" would not be run by government bureaucrats.

The Pensions Commission will not be commenting on the details of any alternative proposals at the point of their publication. These are serious submissions and they deserve the same serious consideration that our own report has been given. The Commission will look carefully at them and come forward with our considered reaction when we publish our sign-off document towards the end of March.

Notes to editors:

  1. The Second Report of the Pensions Commission, 'A New Pensions Settlement for the 21st Century,' was published on 30 November 2005 and is available on our website.
  2. The Second Report recommended the creation of a National Pensions Saving Scheme under-pinned by more generous, less means-tested state pension provision but at an age gradually increasing in line with increase in life expectancy. The National Pensions Saving Scheme has three main features: automatic enrolment, minimum default contributions of 5% of gross pay for the employee with a compulsory matching employer contribution of 3% and a role for government as a bulk buyer of fund management services.
  3. The independent Pensions Commission was established in December 2002 following the Government's pensions Green Paper. The Commission's terms of reference are available on the website.
  4. Adair Turner is Chair of the Commission and Vice Chairman of Merrill Lynch Holdings Ltd. He has recently been appointed as a cross-bench peer in the House of Lords. The other commissioners are Jeannie Drake, who is the Deputy General Secretary for the Communications Workers Union and Professor John Hills, Professor of Social Policy and the Director of the Centre for Analysis for Social Exclusion at the London School of Economics.

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Organisation: Which?

Date released: 09 February 2006

Average earners will be £15,500 better off under NPSS, says Which? 9

The National Pensions Saving Scheme will see average earners accrue £15,500 more over the lifetime of their pension than the financial services industry model (1), according to Which?

Mick McAteer, principal policy adviser, Which?, explains:

"We have a unique opportunity to create a consumer-focused pensions system with NPSS and it mustn't be allowed to become the biggest gravy train in recent history for the insurance industry."

"Industry claims to be able to run a scheme with a charge of 0.7 per cent, but there's no way they can deliver at this level when experience of stakeholder pensions shows us that they couldn't even deliver at 1.5 per cent."

"They have gone in with a low bid and all consumers can do is watch the charges creep up and up. From previous experience, I wouldn't be surprised if we would soon see the charge standing at 1 per cent."

"If this did happen, then consumers would lose out to the tune of £26,000 compared to the NPSS model(2)."

"People earning average salaries will really benefit from NPSS. These are precisely the people that the Government have pledged to help out of the pensions back hole and who must be encouraged to save if the pensions crisis is to be solved. We've highlighted this in our submission to the Pensions Commission and the Department for Work and Pensions."

Someone earning £23,000 a year would be £52 a month, that's £621 a year, better off under NPSS than under the personal pension scheme model at 0.7 per cent proposed by the Association of British Insurers (ABI). If the industry charge rose to 1 per cent then the NPSS return would be even better, with the difference being £87 a month, or £1,044 a year.(3)

Mick McAteer concludes: "Over and above the financial benefits of NPSS, there are other reasons why we should be wary of the ABI model. Can we really put the financial well-being of future generations in the hands of the people who ran contracting out, with millions of people likely to get less than they would have done had they stayed in their state scheme?

"This can't be allowed to happen again. NPSS could be what persuades people to save for their retirement and prevent future generations living in poverty."

The key points of the NPSS are:

  • Affordability: Consumers get value for money with annual management fees being set and maintained at 0.3 per cent.
  • Sustainability: All employees will be automatically enrolled into funded pensions with the right to opt out.
  • Fairness: Compulsory contributions are shared between employers and individuals and consumers will own their pensions savings, unlike the insurance company model where firms have legal ownership.
  • Managed choice: Consumers will have a choice of between six and ten funds, including a default fund, a guaranteed fund and a managed fund or high risk fund to suit their attitude to risk, offering a sensible, managed choice providing security and the opportunity to maximise the potential of pension contributions.
  • Simplicity: Consumers receive regular statements on how their pension is performing.
  • Personal responsibility: Consumers will have the opportunity to exercise choice in retirement through having built up a pension whilst at work.
Notes to editors:
  1. Difference between charges at 0.3% and 0.7% is £168,996 - £153, 465 = £15,531 (see example below)
  2. Difference between charges at 0.3% and 1 per cent is £168,996 - £142,897 = £26,099 (see example below)
  3. NPSS return is £621 a year more than the .7 per cent charge (£52 a month) - 10.12% more.

NPSS return is £1,044 a year more than the 1 per cent charge (£87 a month) - 18.26% more (see example below)


Individual earnings: £23,000 a year (median earnings).
8 per cent of £23,000 = £1,840 a year into the pension fund, or £153.33 a month
Age at start: 25
Saving period: 40 years
Return before charges: 4 per cent above inflation. (to take out the effects of inflation and present things in today's money).
Annuity: Joint life Male 65/Female 65 RPI linked = 4 per cent

Charge: 0.3%; 0.7%; 1.0%
NPSS: industry; potential; industry

23k: £168,996; £153,465; £142,897 (final fund value)
(£6,760); (£6,139); (£5,716) (annual pension from fund)

A full briefing on NPSS, "The real solution to saving for retirement" is available at

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Organisation: Association of British Insurers

Date released: 10 February 2006

'Partnership Pensions' - The ABI's new model for pension saving 10

The ABI (Association of British Insurers) has today (Friday 10 February 2006) submitted ‘Partnership Pensions’, its private sector alternative to the Pensions Commission’s National Pension Savings Scheme, to John Hutton MP, Secretary of State for Work and Pensions. ‘Partnership Pensions’ will:

  • have lower startup and running costs than the NPSS for at least the first ten years;
  • introduce new portable personal accounts for employees, supported by auto-enrolment and employer contributions; and
  • be governed by an economic regulator to keep charges, incentives and contribution levels under review.

Stephen Haddrill, the ABI’s Director General, said:

"’Partnership Pensions’ builds on the best features of the Pensions Commission’s proposal and existing private provision. We firmly believe that the private sector can deliver Adair Turner’s goals more effectively than the State.

"’Partnership Pensions’ will be radical and innovative, featuring personal accounts, portability, auto-enrolment and guaranteed matching employer contributions. It will simplify pensions for individual savers and their employers, and reduce costs, and it will open up the benefits of competition and choice to millions more savers.

"It will also extend pensions saving to a much wider market, thereby helping to close the savings gap and ensure that many more people will be adequately provided for in retirement."

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Organisation: Pensions Regulator

Date released: 14 February 2006

Scheme funding code of practice comes into effect 11

The Pensions Regulator's code of practice on funding defined benefit pension schemes comes into effect tomorrow.

The code provides practical guidance on meeting the requirements of scheme funding legislation and sets out the standards of conduct and practice expected.

Strategic development director Charlie Massey said: "It is important that trustees understand their obligations - they will need to make key funding decisions negotiating with the employer to reach agreement, as well as obtaining and questioning professional advice".

"The code of practice will help trustees decide how best to meet funding requirements for their scheme and how they can comply with the overall standards expected of them."

Guidance for those schemes moving to the new funding arrangements, including the transitional arrangements, will be available on the Pension Regulator's website.

In addition to the code of practice, the regulator will publish examples of funding documents designed to assist trustees and their advisers.

The new scheme funding provisions include requirements for trustees to:

  • Prepare a statement of funding principles specific to the circumstances of each scheme, setting out how the statutory funding objective will be met
  • Obtain periodic actuarial valuations and actuarial reports
  • Prepare a schedule of contributions
  • Put in place a recovery plan where the statutory funding objective is not met

The Occupational Pension Schemes (Scheme Funding) Regulations 2005 (S.I. 2005/3377) came into force in December 2005.

To view the Pensions Regulator's funding defined benefits code of practice and guidance on moving to scheme funding visit:

Editors Notes:

  • Codes of practice are not statements of the law and there is no penalty for failing to comply with them. It is not necessary for all the provisions of a code of practice to be followed in every circumstance. Any alternative approach to that appearing in the code of practice will nevertheless need to meet the underlying legal requirements, and a penalty may be imposed if these requirements are not met. When determining whether the legal requirements have been met, a court or tribunal must take any relevant provisions of a code of practice into account.
  • The new scheme funding requirements are part of wider reforms set out in the Pensions Act 2004. Elements of the scheme funding provisions take account of the funding requirements in Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision.
  • The DWP regulations replaced the minimum funding requirement (MFR) and came into force on 30 December 2005. The new requirements apply to valuations based on an effective date of 22 September 2005 onwards but completed after 30 December 2005. Trustees beginning their valuation between 22 September and 30 December have 18 months to complete their valuation and put in place an updated schedule of contributions, instead of the usual 15 months. Guidance on the timings for actuarial valuations under the new scheme funding legislation can be found on the Pensions Regulator's website.
  • The Pensions Regulator is the regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It replaced Opra which no longer exists.
  • The powers of the Pensions Regulator include the ability to:
    • collect more detailed scheme information;
    • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
    • freeze a scheme that is at risk, while the regulator investigates; and
    • disqualify trustees who are judged not fit and proper to carry out their duties.
    • The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.

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Steve Bee

17 February 2006


  1. Transport and General Workers' Union press release 2 February 2006
  2. CBI press release 6 February 2006
  3. Centre for Effective Dispute Resolution press release 7 February 2006
  4. Department for Work and Pensions press release 7 February 2006
  5. Jackson Consultancy - 7 February 2006
  6. Department for Work and Pensions press release 7 February 2006
  7. Financial Services Consumer Panel press release 8 February 2006
  8. Pensions Commission press release 9 February 2006
  9. Which? press release 9 February 2006
  10. Association of British Insurers press release 10 February 2006
  11. Pensions Regulator press release 14 February 2006

Any research and analysis included has been provided by us for our own purposes and the results of it are being made available only incidentally.