Connected Research

Union policy research in the 21st century

NAPF 2009 survey: urgency required

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The National Association of Pension Funds has today published its annual survey of its members (press release), this year based on 300 responses covering schemes with 8m members and some £410bn in assets.

I’m usually a little wary of citing ‘doom and gloom’ stories in this context: they increase the pressure on good schemes, and particularly on members of good schemes, both in the public and the private sectors; and, in a situation of particular instances of consultations on closures, allow employers to claim they are moving ‘with the market’ (they would probably claim this anyway, but an evidence base always lends greater credence to such a claim).

Nevertheless, the NAPF is right to call for ‘decisive government action’ to support schemes remaining open. Some 82% of NAPF members want the government to issue more long-dated gilts and index-linked securities; this would reduce the pressure on schemes by reducing the value of their assessed liabilities, consequently moving them closer to a position of balance between assets and liabilities, and would provide some level of encouragement for those determined to stick by quality occupational provision. Joanne Segars, NAPF Chief Executive, has called on the government not to ‘miss the opportunity’ of its Pre-Budget Report to ‘make a difference’ to schemes in this way. Such a strong voice from the pensions industry is clearly worthy of detailed consideration.

Almost as high a proportion of NAPF members (79%) want greater flexibility in setting scheme indexation levels or in scheme normal retirement ages. I’m not convinced that changes to scheme indexation would make that much of a difference, frankly, but changes to schemes’ normal retirement ages would seem to be a pragmatic response to increasing longevity in retirement and, where carried out in full consultation with scheme members and representatives, guarding against the exploitation by employers of the current recession-hit environment, are at least worth considering as a means of keeping decent schemes open.

The alternative – almost overwhelmingly poorer DC provision – remains a substantially unattractive one, although one of the positive conclusions of the NAPF report is that DC contributions do not, at least at the level of the average, appear to have been cut in the recession – despite some well-publicised instances. (Perhaps it is a sign of the times that there being no change, and thus no cut, is a positive message.) Even so, contributions at an average of 11.5% (7.5% employer; 4% employee)  remain substantially below what is necessary to deliver an adequate pension in retirement, still less the level at which broadly comparable benefits to DB provision could be achieved – even in theory, given their shift in the risk of investment returns and poor annuities entirely to members.

For its part, Connect has also called on the government to do more to keep schemes open – not least in our prop to this year’s TUC (composited in Composite 10 with those of other unions and overwhelmingly supported by delegates). At the same time, however, it is also incumbent on companies to prove that any moves away from DB provision are not opportunistic cost cutting – something which could be achieved by instigating enhancements to their DC schemes which provide a real, and valuable, alternative. More (much more) needs to be done here at home, too.

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Written by Calvin

27/11/2009 at 1:26 pm

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