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2015 National Delegate Conference
1 January 2015

The Westminster government announced in its last Budget that it planned to allow all those who have been contributing to Defined Contribution (DC) pension arrangements, the option of being able to take their whole pot of money as a cash sum from 6 April 2015.

Up to then contributors could take a maximum of 25% of their pot as a tax free cash sum but have to use the 75% of the value of their pot to buy a pension for life (When contributors used a lump sum to buy a pension this is usually called an annuity).

From April contributors who are over 55 can retire and decide to take the whole pot as cash in which case only 25% will be tax free and 75% will be reduced by their marginal rate of tax (20% for most tax payers and 40% for upper band tax payers)

The government plans to extend this option to members of Defined Benefit Pension Schemes that have funds including the Local Government Pension Scheme (LGPS), Social Housing Pension Fund and the Pensions Trust. Members of unfunded pension schemes like the NHS Pension Scheme will not have this option.

Conference expresses deep concern regarding these proposals.

Conference should be aware that converting pension into a cash sum may be in the best interests of a small minority of members but there are serious dangers that our members’ and their schemes will face.

The risks posed by these proposals are:

1)Likely to cause cash flow problems for the funded schemes if a significant number of members transfer their money out of the funds;

2)Generally not in best interests of scheme member as they are likely to be paying tax where otherwise they would not – but temptation will be great;

3)Likely to worsen annuity rates further so for many members of Defined Contribution arrangements there will be no choice but to take it as cash and suffer tax;

4)Experts anticipate a new market in pension scams to target these lump sums;

5)Potential for vulnerable pensioners to be coerced into cashing in their pensions for someone else’s financial gain.

However, Conference believes the most pressing pension issue at the present time is not being addressed at all.

The biggest vulnerability for future pensioners lies with the inadequate level of employer contributions to Defined Contribution arrangements where there is no benefit guarantee and the member takes all the risks.

Low employer contributions mean that the pensioners’ retirement pot is going to be unable to provide adequate income in retirement. It is the fundamental reason why pension pots in the UK are so small.

Conference recognises that UNISON negotiates hard with employers who are closing their defined benefit schemes both Final Salary and Career Average Revalued Earnings (CARE) and replacing it with a DC arrangement, to ensure an employer contribution is as high as possible.

However, there is the likelihood that if the employer contribution for the majority of those saving for their retirement continues to be totally inadequate, the pressure to dumb down all pension provision in the UK will continue.

Conference believes that it doesn’t have to be this way.

In Australia where they have had compulsory employer contributions for nearly 20 years the situation is very different:

a)Median size of pension pot in Australia is equivalent to £100,000 (A$ 181,000);

b)Median size of pension pot in the UK is nearer to £20,000.

This is because in the UK the minimum employer contribution under Auto Enrolment is currently 1% of a band of earnings rising to 3% by 2017 while in Australia the minimum employer contribution has been 9% for years expected to rise to 12% soon.

Conference recognises the need to obtain properly funded occupational pension schemes but further believes that the failure of successive Governments to set a basic state pension at least equal to the official poverty line figure (currently £175 a week) will result in pensioner hardship.

Conference calls on the National Executive Council to:

i)Start a campaign for a decent pension for all workers to exert pressure on politicians of all parties to recognise the problem of inadequate minimum employer pension contributions and agree a road map to increase minimum employer pension contributions to 12% as soon as reasonably possible;

ii)Organise a member information campaign which explains the potential dangers, pros and cons of cashing in pension fund savings and where possible promotes the benefits of remaining in the LGPS;

iii)Lobby the Financial Conduct Authority and the Pensions Regulator to ensure proper safeguards for members of pension schemes that will allow members to choose to take all their benefits as cash;

iv)Campaign for an increase in the basic state pension to at least the poverty line figure;

v)Work with the TUC, STUC, WTUC and ICTU and the National Pensioners Convention.