Conclusion
Jump to
8.1 The subject matter of this report is one that is linked to many of the current debates within public policy. The wind-up of occupational pension schemes – and the losses that have occurred as a result of many of those wind-ups – also touches on a number of critical issues at the heart of public administration and on the relationship between citizens and those who govern them.
8.2 On the one hand, it has long been stressed – and recent evidence from a range of sources has re-emphasised this – that savings and pension decisions are critical decisions on which the future, long-term security of individuals and their families depend. Much concern has been expressed about ‘savings gaps’ - and about the inadequacy of reliance both on state retirement provision alone and on the insufficient additional pension provision that citizens are acquiring for themselves.
8.3 On the other, it has also been a matter of consensus for some time that one of the key disincentives to individuals acquiring pension cover additional to that provided by the State has been a lack of trust that investment in a private pension is a secure and worthwhile means of providing for the financial future of individuals and their families.
8.4 It has often been said that pensions is a partnership between the individual, the State, and the pensions industry. Where private pensions are provided through membership of an occupational pension scheme, that partnership also extends to the employer who sponsors such a scheme.
8.5 Individuals have clear interests in securing their future through planning ahead for their retirement. Employers often see the provision of good pension arrangements as a means of attracting and retaining high quality staff. The pensions industry provides the means to do all this. It seems to me that, as a partner in this system, the State also has incentives to ensure secure and adequate retirement provision for all those who can afford to make such provision - not least as such provision reduces reliance on means-tested support for pensioners.
8.6 The events which have formed the focus of this investigation are naturally distressing for those whose financial security has been so profoundly affected by the loss of part or all of the pensions they had been promised when they decided to make additional provision for their retirement and for their family’s security.
8.7 However, it seems to me that these events should concern us all – as they go to the heart of the - perhaps unwritten if not unspoken - contract between the various parts of the pensions partnership. They also relate in a most fundamental way to such key considerations as the role of the State, the purposes of regulation and of the information provided by public bodies, and the bond of trust between the citizen and Government.
8.8 In considering the evidence I have reviewed in this investigation, I have been struck by a number of mismatches – but also by a degree of continuity.
8.9 It will be obvious to readers of this report that I have found that there was a clear mismatch between the level of security that final salary occupational scheme members could expect from the legal, regulatory and administrative frameworks in place and the information that was put into the public domain about such protection.
8.10 Nobody doubts that pensions – and pension scheme funding – is a technical and complex subject. But if citizens are to be empowered to make informed choices about savings and pensions options, which is an admirable and necessary objective, then those who devise, administer, and enforce the rules and frameworks within which those choices will inevitably be made should be as clear as possible about what citizens can expect from others and about what their own responsibilities are.
8.11 It seems to me that clear, complete, accurate and consistent information, tailored where appropriate to different levels of knowledge and experience, is a necessary part of creating an environment in which informed choice can flourish.
8.12 Another mismatch that emerges from the evidence set out in this report relates to the role of Government in the private pensions world and, in particular, to its own perception of that role.
8.13 Considering the evidence I have examined in conducting this investigation, it seems to me that insufficient regard was had by such public bodies over many years to the influence that they – and the information they provided – would have on those who were seeking to make choices about private pension provision.
8.14 While I understand why Government might now consider that its role within this context was limited and its view that others – particularly individual citizens – should have always recognised that this was the case, this was not what they said at the time. Nor do I have any doubt that information provided by Government was widely seen as being authoritative and persuasive.
8.15 Readers of this report will also know that I consider that such a view was a reasonable one for citizens to hold. After all, if those who created laws to provide protection for pension rights and to define and determine the responsibilities and rights of the various parts of the pensions ‘maze’ could not be relied on to set out that protection and those responsibilities and rights clearly, then who could?
8.16 I believe that it is a proper public function for Government to seek to identify the need for adequate retirement provision and to inform people clearly of the options they have. It also seems entirely proper that public bodies should oversee frameworks of regulation and control that support pension provision of all types, to ensure that investment in pensions is undertaken in a reasonably secure environment.
8.17 However, I consider that many of the problems I have identified in this report are related to insufficient clarity about what Government’s role was during the relevant period in relation to the framework of final salary occupational pension scheme funding. It is one thing to set standards or to provide safety nets. It is another to prescribe in great detail the level at which each scheme should be funded.
8.18 It seems to me, when Government did the latter, that it was hardly surprising that complaints were directed towards those public bodies which designed and oversaw the funding framework when that prescribed level proved inadequate – or rather, when it failed to provide the protection that scheme members had been told it would provide. Nor does it seem that such an eventuality would have been a surprise to Government – after all, a GAD actuary had told them in June 1999 that he was ‘waiting for the edifice to collapse’ and for complaints about these matters to be made.
8.19 This brings me to some continuities.
8.20 The events I have investigated took place within a statutory and regulatory framework which has now been replaced. I hope that the pension protection arrangements that form part of this new regime are being properly explained to scheme members and others in clear and consistent terms. As a recent NAO report shows, ensuring that the information provided to the public is accurate and complete while being accessible remains a challenge for DWP.
8.21 Despite the very different nature of the new regime, many issues relevant to the old regime continue to be of central importance to those operating the new arrangements – and to the other members of the pensions partnership.
8.22 Such continuities include the desire to balance the interests of sponsoring employers and those of scheme members, the desire to ensure that pension rights are afforded a reasonable degree of security while not imposing so stringent a burden that there is a sustained and irreversible retreat from occupational pension provision, and the desire to promote opportunity and real choices for those seeking to secure their financial future.
8.23 However, there is perhaps one other continuity that is of direct relevance to the subject matter of my report.
8.24 The then Secretary of State for Work and Pensions said in the House of Commons on 2 March 2004, when moving the Second Reading of the Pensions Bill which contained provisions to replace the old regime, that ‘I am clear that a pensions promise made should be a pensions promise honoured’.
8.25 Concluding that debate, the then Pensions Minister said:
When we vote this evening, the House has an opportunity to take the first steps to make the Pensions Protection Fund a reality, a major social policy innovation, a consistent piece of pensions architecture – to build confidence that a pension promise made will indeed be a pension promise honoured.
8.26 Yet this aspiration was nothing new. The then Secretary of State for Social Security in the previous Government said in a debate in the Commons on 3 November 1993 on the proposals of the Goode Committee - which, as is noted in chapter 4 of this report, were the foundation on which the Pensions Act 1995 was built - that:
Professor Goode spelled out his intention when he said that he wanted to make a reality of the pensions promise. We want to make sure that the promise inherent in membership of a pension fund is fulfilled – that its assets are there to ensure it is fulfilled and properly funded, and that abuses do not occur.
8.27 A Minister in that Government later said that the MFR had been designed to underpin the employer’s pension promise.
8.28 Governments have never said that fraud or abuse can be totally prevented. Indeed, the 1995 Act was very much a response to the Maxwell affair. However, as is also noted in chapter 4 of this report, the then Government urged support for the introduction of the MFR in clear terms:
After everything that has happened in the past few years… we could not be proud… if we were not in the end able to say that schemes must have sufficient assets available within a certain time to keep pensions in payment and give non-pensioners the value of their accrued rights… That is the least that we should require of schemes.
Without that requirement, what on earth would we say to people who ask whether their pension funds will be able to keep their pensions in payment or give them the value of their accrued rights if the scheme winds up?
Without the MFR, the answer to such a question would be no. What on earth would we have achieved then? The Minimum Funding Requirement would mean that the answer would be yes. That is all we seek with the MFR.
8.29 Those who have complained to me asked that question. Having been assured by official information for many years that their pensions were safe if their scheme was funded in accordance with the MFR, they now look to those who provided this assurance – which they trusted - to honour the pensions promise that has been broken.
8.30 This Government is, in the words of a Minister on 3 April 2000, ‘aware of the importance of protecting members’ rights. That is the bottom line. If we cannot do that, they have no-one else to look to’.
