Occupational pensions in the UK: the current legal framework Institute for Employment Rights 10 March 2010

How did we get here?

The Turner Commission  What went wrong?  “Explosive” growth in the period  3.1m increases to 8m  The rise was affordable  High marginal tax and corporation tax made it attractive  Income policies constrained pay but not pensions  Favoured by trade unions  But big gaps  Early leavers  Partners  Women’s benefits  Pension increases

The Turner solution  “It is difficult to see private sector DB provision, certainly final salary in form, playing more than a minimal role in the future UK pension system”  So go DC  With a state pension scheme underpin

The Turner target

So where we are  Preserve what we have got  Manage the transition  Get used to DC

Statutory protection  Pensions Act 1995: Subsisting rights provisions  Preservation  Indexation  Discrimination  Contracting out  Superannuation Act 1972

Protection under the rules  Rare  Lloyds Bank  Ricoh  Astra Zeneca  Privatised utilities  Avoid by changing the contract of employment:  South West Trains v Wightman  Employer cannot risk triggering a section 75 debt

Changing the contract  Cut benefits by changing the contract of employment  Requires consent  Unions in a potentially strong position  Terminate and re-employ  Potential claim for unfair dismissal  What is the balance between the advantage to the employer and the disadvantage to the employees?  Was the dismissal procedurally fair?

Managing the transition  One scheme or two?  KPMG and Imperial Home Decor  Trust-based or contract-based?  Tax considerations  Monarch Airlines  Consultation requirements

Dealing with DC  Control issues  Trustees or management committee?  PHI schemes – who controls the medical decisions?  Role of the provider  FSA regulation  Changing the provider

The Regulator and the FSA An early warning system: ranging from the trivial to the serious Stringent timescales and penalties But on its own, calls for a file to be opened and no more

TPR and FSA examples  Individual’s administration complaint: PAS and the ombudsmen  Late payment: the Regulator  Unit pricing error: the FSA  Allocation of contributions: joint  Poor investment performance: neither?

 Regulator’s main concerns:  Lack of member understanding  Poor administrative practices  Unduly high charges  Poor decisions on retirement choices  The need for a model constitution DC Governance

Occupational pensions in the UK: the current legal framework Institute for Employment Rights 10 March 2010