Connected Research

Union policy research in the 21st century

KCom pensions review

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KCOM is to begin a consultation exercise on a harmonisation of the Group’s ten different pension arrangements into a single, newly-created and Group-wide pension scheme for all employees. The proposal will, at the same time, close all the existing schemes to future service.

We firmly believe that KCOM Group has a responsibility to maintain the long-term promise it has made its employees to provide decent pensions. We would always advocate a rational response to proposals such as those which have been put forward, but we would not accept that this means putting up with severe detriment.

Prospect, which has already met KCom on the proposal, will continue to be active in the consultation exercise and is urging all Prospect members in the Group to read all the documentation, review their own pension situation and also to take an active part in the exercise.

In the meantime, Oxera Consulting today published a short review of defined contribution pension schemes in the financial crisis. Largely aimed at reviewing the policy responses in central and eastern Europe, the document is very good on the difficulties that are posed to individuals faced with the need to make investment decisions as a result of membership of DC schemes, and of the social jeopardy resulting from people retiring at different points of the economic cycle with the same contributions record but entirely differently-sized pots. It also makes the very good point that, for all the problems associated with higher-risk investments, the long-term return from equities is much higher than with safer forms of investment.

Switching increasingly into less risky investment vehicles is vital to protect capital in the run-up to retirement – but those needing to draw shortly on their pension, for example, those who would ordinarily have been looking to switch into safer forms of investment say in March 2009, would have been placed in the invidious position of having to consider whether, in contrast to this basic advice, to gamble on staying with equities in the hope of the stock market rebound. Over the course of 2009, such a rebound did happen, but its timing and extent were evidently far from clear at the outset. Playing with spare cash in that situation is one thing; playing with your retirement savings is entirely another.

As more schemes switch to DC-type provisions, there is a need to consider DC scheme design so as to achieve some means of a targeted level of pension benefit, not least in the (deliberately extreme) situation highlighted in the Oxera report. It has always been possible to design some form of targeted benefits underpin, with this re-appearing most recently in the collective DC approach which, although not fault-free, did at least offer some means of getting around the potential timing-based unfairness of DC and of sharing the risks associated with this form of provision more evenly between scheme members. The DWP has withdrawn from the idea of collective DC but it’s certainly possible to design on a private basis a DC scheme to suit such characteristics as are appropriate both to scheme members and to the companies offering them, so as to create a DC scheme which is both more fair and more balanced. The question remains one of whether there exists the will to do so.


Written by Calvin

22/02/2010 at 5:52 pm

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