Pensions in the melting pot again
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by John C. Vann
MANY employers in the haulage sphere to whom I have spoken recently feel confused as to the present pensions position. The confusion has been caused,, in the main, by Mrs Barbara Castle's announcement in the House of Commons in early May this year. This was to the effect that the Reserve Pension Scheme provisions of the Social Security Act 1973 were not to be implemented. And there is now no legal• requirement for employers to provide pensions either through a company pension scheme or the Reserve Scheme.
However, the basic pension provisions of the Act will come into force on April 5 1975 as planned, and also the provisions relating to the preservation af occupational pension rights. One haulier last week wanted to know what ill this implied.
Well, while every employee will still -eceivc the same pension — that is, old tge pension — the amount he or she )ays for it will depend on his or her earnngs; it will not be a flat rate contribuion as at present. When the Act was ntroduced last year, the contribution of !mployees was set at 51/4 per. cent of 'arnings up to PA times the national .verage earnings'(ie, up to £54 a week on present calculations 'seeing that the iational average is running at £36 a reek currently). Employers were down D pay in 71/2 per cent of the total wages ill. It was stated that working wives, as ow, would have the option of paying abstantially less.
4ore money needed
But Mrs Castle has had something to ty about these plans. As higher basic :nsions are being paid -£10 to single ,tople and .1:16 to married couples — .ore cash is needed in the coffers. The tggestion is that the standard permtage under the graduated scheme be )fifted to 51A per cent from this August id that this same percentage be paid by nployees under the basic pension heme from April 1975, as the aduated plan is being shelved from at time. It seems that employers will .Ve to put in about 83/4 per cent as iposed to the previously suggested 71/2 r cent. The Exchequer contribution 11 stay at 18 per cent. Mrs Castle was quick to point out that any employee who became a member of the State Reserve Scheme, had it been put into operation, would have been paying 11/2 per cent of earnings up to £54 a week, with the employer paying 21/2 per cent of his wages bill. Of course, these additional contributions will not now be imposed.
By making the contributions earnings-related the Government will achieve an automatic regulator which will enable them to review pension levels annually. As earnings rise, so do contributions and likewise pensions.
With the demise of the graduated pension scheme from next April many people are wondering what will happen to their past contributions to this not very successful scheme. Well, it seems that any benefits which have accrued up to April 1975 will be "frozen" in favour of the person concerned. Also being scrapped is the National Insurance stamp doubtless a big relief to employers and to the young ladies who normally have to lick these wretched stamps!
No pension forfeit
What about the preservation of pension rights? In the past, employees leaving a company have usually taken their pension contributions -(because they had the option to do this), less a deduction for tax, in the shape of a cash sum. By taking this option it meant that the pension they would have earned for those years of service was thrown out of the window and there was no benefit at all from the employer's contributions.
This is to change from April 1975, after which time there will be no such forfeiting of pensions. Either the exemployer holds on to the contributions and preserves the person's pension rights, or the contributions are transferred lock, stock and barrel to the new employer's pension scheme.
Preservation is to be compulsory. Transferability, though not obligatory, is desirable. Not only is it simpler to receive a pension from one source, but also for technical reasons the benefits from transferability are greater than if the old pension is merely preserved. It should be stressed that these prevervation rulings apply only to those employees who leave after the age of 26 and who have had at least five years' service.
Why did Mrs Castle and her colleagues think fit to amend the Social Security Act? It seems that they felt the provisions for the so-called "second pension" were inadequate. Further, they considered that women in genera) and widows in particular would be left without adequate pension coverage.
Encouraging company schemes
Mrs Castle made it plain that she is in favour of, and wishes to encourage the development of, good occupational pension schemes which are highly valued by the people in them. She emphasized that it was not the purpose of the Government to place any obstacles in the path of such schemes.
Employers are thus being encouraged to go ahead with any pension schemes they have already arranged or are in the process of arranging for their employees, as it could be two or three years or even longer before any new plans are implemented. What these plans are likely to be are expected in a White Paper "as soon as possible".
Some haulage contractors may feel that it would be better to wait and see what springs forth from the present deliberations on pensions before they make a decision. Certainly it seems that to see what the White Paper contains would be a wise move, unless definite pension arrangements have already, been made.
Against this wait and see approach, many employees will not be covered even for the somewhat meagre benefits which were laid down under the Social Security Act. With a starting point no longer being established, and human nature being what it is, a host of employers will doubtless sit on the fence until they are compelled by law to act.
Perhaps it would be more appropriate for pensions to be taken out of the political arena and an all-Party committee set up to put forward _pension plans acceptable to all parties and trade unions.