IER Seminar

2. IER Seminar Defending occupational pensions in the private sector Bryan Freake – Unite Pensions Officer

3. Why members want defined benefits and final salary • They are perceived as quality schemes • They give a clear idea of what pension will be when you retire • The employer takes the risk

4. When is DB not DB • When pension increases are discretionary ? • When pensionable pay is interfered with ? • When pension is adjusted for mortality ? • Changes like this have the scope to halve the value of the members pension • Members may have little idea what they will get

5. Collective DC Schemes • A DB scheme which allows the employer to fix their cost is a collective DC Scheme • If pension increases became discretionary and benefits could be directly adjusted for longer mortality • These changes are calculated not just to deal with inflation and mortality risk but also to cover investment risk

6. The enemies of DB ? • Actuaries – who allowed the boom and failed to protect us against the bust • Accountants – who have destabilised company accounts – and may go further with a risk free liability assessment • Pension Consultants - who started the rush to Dc and overlooked alternatives

7. Who else can we blame ? • The Government – as much good as there has been bad • The Markets – inevitably but perhaps not deliberately • Employers – are they justified in breaking their promises • Pensioners –outstaying their allotted span

8. The Tory threat • Pulling up the public sector anchor • Raising State Pension Age quicker • Taking de-regulation of pension increases further • Allowing mortality to impact past service

9. Lets look at some Hybrids • Barclays • Unilever • BAe • Johnson Matthey

10. Barclays • 3% contributions for 20% ‘cash balance’ at age 60 • Cash balance revalued at RPI + up to 2% based on investment performance • Plus a DC element with a match of up to 3% for 3% • Contracted-in

11. Unilever • New entrants scheme • 5% for a 1/60 CARE benefit at age 65 on salary between £4500 - £38,000 • CARE revaluation RPI up to 5% - upper salary threshold linked to Unilever pay increases • Company pays 12.5% salary /pension allowance on pay above £38,000

12. BAe 100 • New entrants scheme • 1/100 final salary benefit • 2% credited to DC account • Member contribution 4% • Longevity adjustment factor • Contracted-in

13. Johnson Matthey • Non-contributory 1/80 CARE scheme benefit at age 65 • Employee contributions matched in DC supplement to a maximum of 3%:3% • Contracted-in

14. Hybrids that did not last • Action for Children • Alstom • Goodyear • Smiths • De La Rue (proposed closure)

15. DC schemes paying at least 10% • Akzo Nobel, AMP, Aviva • BAA, BOC, Diabetes UK • Finn Mechanica, Friends Provident, HSBC • L&G, National Grid, NFU Mutual • Phillips, Prudential, Reckitt • Rolls Royce, RSPCA, Siemens

16. Transitional Compensation • Steria – DC contributions individually targeted to have a reasonable chance of replicating previous DB benefits • Fujitsu – (proposed) – 5% uplift in salaries to compensate for switch to a 5%:10% DC scheme • Siemens – DC with matching up to 10%:10% with special contribution supplement for 15 years at maximum declining from 10% to 5% over the period

17. Where are we Going • 80% of DB schemes closed to new entrants compared to 20% in 2000 • 20% closed to further accrual by existing members and rising more rapidly • Current law allows plenty of scope for risk sharing • Increasing flexibility may only accelerate the decline in scheme quality

18. Resisting the Tide • Employers are forced now to consult • We must make them negotiate • There is always scope for a better deal • Unite is pledged to support members prepared to take action to defend their pensions