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About the P&I Team Briefings Home | Responses | PFI Index | Policy Guide
Bargaining for Pensions Briefing No 99
Communications

 

 

 

Bargaining for Pensions Briefing No 99

Introduction

This briefing provides an outline of the main issues surrounding occupational pensions. It is intended to provide a background for branches which may have to bargain on general pension issues.

Background

An occupational pension scheme is an arrangement set up by employers to give their employees pensions when they retire. Occupational pension schemes may also pay you a tax-free lump sum when you retire and may provide benefits for your dependants if you die before them.

Occupational pension schemes have two main forms final salary (defined benefit) or money purchase (defined contribution). These are discussed in the following sections.

Payments you make towards your occupational pension will usually entitle you to tax relief up to a set limit. That means at the basic rate of tax of 22%, every £100 that goes into your scheme costs you £78. At the higher rate of 40%, £100 costs you £60.

Final Salary Pension Schemes Money Purchase Pensions

Final Salary schemes (also known as defined benefit schemes) provide a pension that is calculated using the member's earnings close to retirement and their length of membership in the scheme. They have an accrual rate, which is the rate at which pension is secured, and this is usually a 1/60th or 1/80th dependent upon the scheme.

This means that for every year of membership, the member accrues the applicable fraction of their earnings at retirement as a pension, which usually includes life cover and dependant's pensions on death as well as the member's pension. The member's contribution rate is fixed and the company picks up the rest of the cost of providing the benefits. This can vary every few years depending on liabilities paid out and investment returns received.

 

Money Purchase schemes (or defined contribution) provide a fund at retirement with which the member buys an annuity, or pension, to suit their circumstances. This fund is built up from the member and employer contributions paid, plus the investment returns.

The pension you receive in retirement is based on the total payments into the pension fund and how well these investments have performed as well as the 'annuity rate' at the date of retirement. This is the rate of exchange at which an insurance company will convert your pot of money into an annual pension allowance.

Both the member and the company contributions are fixed, but the final fund value and the pension that it can secure will not be known until retirement.

Pension Changes

If you are in a defined benefit scheme and your employer is proposing to change your company pension:

  1. Ask if the change applies to existing staff as well as new staff
  2. If it applies to existing staff, ask if employer contributions are likely to be lower under the new scheme than under the old
  3. Determine if it represents a change to the original terms and conditions of your employment

If it does, check with your Regional Officer to determine if further action is appropriate

If your employer is seeking to change from a final salary pension to a money purchase scheme this will not only substantially reduce members' security but may also reduce the cost of the pension for the employer. This is because most employers contribute significantly less into a money purchase pension than a final salary pension.

Pension Protection

Under the provisions of the Pensions Bill currently going through Westminster Parliament a Pension Protection Fund will be set up to ensure people do not lose their pensions savings if their company goes bankrupt. Currently, if you are a member of an occupational pension scheme and your company goes bust, you may find yourself facing significantly reduced payouts when you come to retirement.

In future, should a company that runs a pension scheme go under, the PPF will pay out 100% of the original pension promise to members of the scheme who have reached pension age, and 90% to people below that age.

The fund will be paid for through a levy on all defined benefit company pension providers in the private sector. This will be a flat rate fee to begin with, but will later be charged in line with risk, so less solid companies will have to pay more.

Conclusion

Overall, good occupational pension provision will not only ensure that individuals do not live in poverty during retirement, but will also provide a means for employers to assist with staff retention. In addition, a strong occupational pension is also a powerful recruitment tool.

Further Information

Further information on occupational pensions can be found at:

UNISON Pension Information

http://www.unison.org.uk/pensions/index.asp

TUC Pay Up for Pensions

http://www.tuc.org.uk/theme/index.cfm?theme=oink

Action for Branches

This briefing is primarily for information and discussion purposes. However if your employer is considering introducing a new pension scheme or altering an existing one contact your Regional Officer for further advice.

 

 

 

 

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Further Information

UNISON Pension Information

http://www.unison.org.uk/
pensions/index.asp

TUC Pay Up for Pensions

http://www.tuc.org.uk/theme/
index.cfm?theme=oink

 

Contacts list:

Dave Watson -
d.watson@unison.co.uk

@ The P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0845 355 0845
Fax 0141-307 2572