HM Treasury Freedom and Choice in Pensions 11 June 2014

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1 CONSULTATION RESPONSE HM Treasury Freedom and Choice in Pensions 11 June The welcomes the opportunity to respond to HM Treasury s consultation, Freedom and choice in pensions. 2. The is the largest teachers union in the UK. 3. The has profound and deep concerns about the Coalition Government s pensions policy. The has progressed a trade dispute with the Secretary of State for Education over detrimental changes to the Teachers Pension Scheme (TPS) since In addition, the strongly opposes the provisions of the 2014 Pensions Act. This provides for further attacks on working people s pensions, including increases to the pension age beyond those already announced. 5. In this respect, the strongly deplores the announcement made by the Chancellor of the Exchequer in his 2013 Autumn Statement, that the increase in the pension age, as previously announced, would be accelerated so that it would increase to 68 in approximately 2036 and to 69 and 70 at approximate ten yearly intervals thereafter. The believes that this is the clearest example yet of the Coalition Government s work till you drop culture. 1

2 6. The has strong concerns about the Coalition Government s defined ambition proposals, which would weaken the regulatory framework to allow benefits to be reduced, allow for the ending of pensions indexation and bring about other detrimental changes to pension provision. 7. The has very strong concerns about the long-term viability of the TPS as a result of the Coalition Government s reforms, which are now demonstrated by the sharp increase in opt-outs from the TPS, particularly on the part of teachers in the early years of their careers. Irrespective of its trade dispute with the Secretary of State for Education over the Coalition Government s TPS reforms, the considers that it is vital that the TPS is maintained as a key element of the national pay and conditions package for teachers. 8. The therefore participates in this consultation in the interests of members. One of the key tests for the is whether the current Freedom and choice in pensions proposals further threaten the viability of the TPS. In addition, the is mindful that, for many members, their pension provision will be made up of their TPS pension, their state pension and also additional pension provision which could be subject to the pensions liberation reforms. The wishes to secure every potential element of teachers pension provision. GENERAL COMMENTS 9. The will comment on the proposals set out in the current consultation, without necessarily following the format of answering each of the consultation questions. 2

3 SPECIFIC COMMENTS The ending of mandatory annuitisation of pension funds 10.As the consultation document makes clear, the Coalition Government proposes to end the mandatory annuitisation of pension funds which was first enacted in 1921 and replace it with a system where pension savings can be extracted in one go and then used to purchase an annuity, invested as the beneficiary sees fit or simply spent all at once. The believes that there is an enormous risk to this strategy. 11.The accepts that there are problems with the annuities market, and that the high fees charged by some providers of annuities are nothing short of scandalous, but the purpose of annuities is to give fixed income during retirement up to death. The Coalition Government s proposed reforms therefore run a high risk of creating a system where many current contributors to pension savings have no pension, simply because they have spent their pension savings on something other than an annuity. 12.Given this risk, the believes that it is reckless for Government ministers to make comments that pensions savers may wish to spend their pension on a new Lamborghini. However, this does point up that a major motive for the Coalition Government is to create demand in the economy, which has been removed by the Government s draconian and unnecessary austerity policy. The believes that more effective regulation of the annuities market is the appropriate means of addressing its problems, rather than the pensions liberation approach. 13.The notes the references in the consultation document to the Coalition Government s desire to create a larger market for financial 3

4 products for social care 1 and believes that the pensions liberation policy is partly motivated by a desire to expand profit-making private sector provision to replace social care services which have been cut by its austerity programme. The deplores the replacement of public sector social care provision with profiteering private sector provision. 14.In particular, the draws attention to the key danger of pensions liberation, which is that pensions become seen as another form of saving, rather than a means of providing an income during retirement. The Coalition Government recognises this, stating in the current consultation document that, there is also likely to be a group of people who spend their pension wealth early in their retirement. 2 Question 4 15.The Government s proposed response is therefore to increase the minimum pension age to 57 in This is, in itself, a recognition that the risks of pensions liberation are too great. In fact, the proposal that the minimum pension age could be raised to 10 years below the state pension age is an admission of the high level of risk involved in pensions liberation. The is completely opposed to the proposal that the planned change in the minimum pension age should be applied to all pension schemes which qualify for tax relief, such as the TPS and other public service pension schemes. It is unacceptable to the that teachers, and other public service pension scheme members, should pay the price of the recklessness of the Coalition Government s pensions policy Paragraph

5 Question 5 16.The linked proposal that the minimum pension age should be increased even further to manage this risk, to five years below the state pension age, is therefore even more unacceptable to the. Currently teachers can access their pension at age 55 and such a change in TPS scheme design would lead to widespread anger across the teaching profession. The retirement planning of hundreds of thousands of teachers would potentially be thrown into disarray by this provision. Management of risk 17.The accepts that the Government should legislate to remove the right of all members of public service defined benefit schemes to transfer to a defined contribution scheme, except in exceptional circumstances, and considers that this removes the risk to Government finances posed by potential transfers out of both funded and unfunded public service pension schemes. In fact, the Government has already taken steps to prevent such transfers and it is therefore unnecessary to manage this risk further by changing the minimum pension age for public service pension schemes. 18.The has not reached agreement over the TPS Proposed Final Agreement (PFA). It is a principled matter of concern to the that, in circumstances where agreement on a PFA has been reached by trade unions in sectors other than Education, some of those agreements would be broken by the application of the increase in the minimum pension age to public service pension schemes. Question 8 19.As part of the process of managing the risks associated with pensions liberation, the Government wishes to ensure that appropriate pensions 5

6 guidance is available at key decision points during working people s working lives. Whilst the, together with other trade unions, cannot provide independent financial advice, the union is able to deliver generic advice on the framework pensions provision for teachers and its work with teachers raises understanding of pensions issues. Trade unions, including the, are key social partners in pension provision across the UK. Conclusion 20.The therefore rejects the pensions liberation model as posing too high a risk to the pension provision of UK working people and to the UK s public finances. Clearly, the Treasury does recognise this risk. However, if the Coalition Government ignores this and does proceed with its Freedom and choice in pensions proposals the risk to the public service pension schemes, including the TPS, should be managed by the banning of transfers from public service pension schemes, rather than by any increases in the minimum pension age. Chris Keates (Ms) General Secretary 6

7 For further information on the Union s response, please contact: Dave Wilkinson Hillscourt Education Centre Rose Hill Rednal Birmingham B45 8RS nasuwt@mail.nasuwt.org.uk 7