Smith gives Pickering report cool reception

Alan Pickering must be ruing the day that Alastair Darling was moved to the Department of Transport. Andrew Smith, the new Secretary of State for Work and Pensions has already distanced himself from some of the recommendations in Mr Pickering's recently published report1 on the simplification of pensions. The report would undoubtedly have received a more sympathetic response from Mr Darling, who commissioned the review just nine months ago (OP, November 2001). A consultation paper was issued (See Consultation paper on pensions simplification), with responses highlighting contracting out, disclosure and preservation as major issues (See Submissions to Pickering simplification review).

Report's recommendations

Among the 52 recommendations in the report, the key proposals are to:

  • remove the requirement for occupational pensions to be increased while in payment, so-called limited price indexation;

  • replace prescriptive detail in legislation (for example on member-nominated trustees and disclosure) with statements of intent backed up by codes of practice;

  • simplify the reference scheme test for contracting out of the state second pension on a defined-benefit basis, removing the requirement for schemes to provide a spouse's pension;

  • allow employers to make membership of pension schemes compulsory if the employer is contributing at least 4%;

  • require the immediate vesting of all benefits (rather than after two years' pensionable service), and thus prevent refunds of member contributions;

  • require one-third of the trustees of occupational schemes to be nominated by members (except in multi-employer centralised schemes); and

  • allow schemes to be modified in a way that ensures accrued rights can be replaced by new rights of equivalent value.

    Underlying the proposals are the twin aims of ensuring that occupational schemes are not prohibitively expensive for employers, and that as many people as possible build up pension rights. The report acknowledges that "in some areas, the guaranteed future benefits for those in pension schemes may be scaled back somewhat in order to allow those currently without pensions into the pensions arena".

    Andrew Smith's response

    Mr Smith told the Commons that the recommendations to end both the compulsory indexation of pensions in payment and the requirement for survivors' benefits for contracting out "are not attractive". He talked of the report offering "clear options for simplification", rather than as providing preferred policies.

    However, the Secretary of State detailed some less contentious issues that he says the government plans to take forward, subject to the responses received to the report. These are: "improving the way in which contracting out is administered; streamlining procedures and reducing general administrative burdens; looking at ways to better provide advice through the workplace; and improving information going to pension scheme members".

    A Green Paper is now promised for the autumn.

    Initial responses

    Initial reactions to the report have ranged from a cautious welcome to outright rejection. The National Association of Pension Funds carefully avoids commenting on the most contentious proposals and the Association of Consulting Actuaries welcomes those changes that potentially reduce employers' costs. The Pensions Management Institute believes that the proposals will stem the tide of final-salary scheme closures, but other organisations are noticeably quiet on this issue. Trade unions are generally alarmed by the report's recommendations, though the TUC is more positive.

    1"A simpler way to better pensions: an independent report by Alan Pickering", available from the internet (at www.dwp.gov.uk/publications/dwp/2002/pickering/report.pdf ), and from The Stationery Office, PO Box 29, St Crispins House, Duke Street, Norwich NR3 1PN, tel: 0870 600 5522 (enquiries), price £14.25 plus £3 p&p.