“I want to dispel any sense of unions just obdurately banging the table and refusing to countenance any change in a shortsighted way,” she says. “Unions and trustees have been very ready to negotiate and agree substantial changes to schemes to keep them going. Look at a whole range of rescue plans that have been decided by trustees, and you will see all kinds of compromises where benefits have been voluntarily given up, where benefits going forward have been worsened, accrual rates have been worsened, lower indexation rates have been agreed and employee contributions changed.”
One line in the sand, however, is spouse’s benefits and inflation protection. Carberry is clear that these are hard-won rights that are not going to be relinquished to allow employers who would otherwise maintain defined benefit pensions to diminish their value. For her, these are non-negotiable, however much the pensions industry might wish the contrary were the case.
“Unions are actively engaged in finding ways of keeping pension schemes open, but it is difficult to buy the argument that easing up on regulation in DB will lead the way to keep more schemes going. We are yet to be convinced about that,” she says. “If we ease up on some aspects of the regulation the probable outcome will be that some employers will take advantage of that who wouldn’t have, so you will reduce the quality of schemes on offer. It will become an opportunity for employers to save costs.”
Another of the thorny issues where the TUC is in opposition to the pensions industry is Personal Accounts and the certification of exemptions. Many in the pensions industry argue that the only way an employer can be sure it will not fail to pay an amount equivalent to band earnings is to mimic the definition of banded earnings included in the bill. But this means bonus, overtime and commission will also be included, which will lead to higher contributions. This will persuade employers to simply move over to Personal Accounts, or so the argument goes. Carberry sees the issue of band earnings as one that is in the past, and she remains unconvinced that levelling down will actually happen.
“What emerged from that early debate on qualifying earnings, which applies to all the other features of Personal Accounts, was a compromise, because the aim at the time was to reach a consensus. Even before we got to the stage of there being an admittedly uneasy consensus, it had been said that there would be widespread leveling down.
“This is all on the level of prediction and counter-prediction, and we are not aware that there is any certainty there will be widespread leveling down, simply because it is too complicated to work out the relative advantage of keeping with what you have got and trying to establish it as an exempt scheme.
“We are aware of the concerns of employers and of organisations that represent the views of pension schemes. But when you talk about part of those anxieties being in the complexity, I think the same issue applies to individuals who are eventually going to have to make a choice as well about whether to opt out of either their employers’ scheme or Personal Accounts. The answer to all this lies in the quality of information and advice that is going to be available to individuals and employers,” says Carberry.
“From the outset pension providers were worried about the recommendations of Turner’s Pensions Commission, and have been very consistent over the last few years in the way that they have approached this, understandably so,” she says.
“But from our point of view, and I think it ended up being the prevailing point of view, we need to see a low-cost scheme created that is going to scoop up all that mass of people who aren’t saving at all, and whose employers provide them with either very little or nothing at all,” she adds.
Carberry accepts the system will not be perfect, as is the case with any new system, but believes problems will be ironed out, and reports that the TUC is not getting feedback from employers that levelling down will happen. Pensions professionals, on the other hand, argue that with up to 70 per cent of TUC members in final salary schemes, it would not necessarily be in a position to know what the situation is with those employers most likely to level down.
She also says that when markets and job security improve, so the attractions of pensions as a staff retention tool will increase. But does she worry that now is an easy time for employers to stick the boot in and take away benefits?
“We wouldn’t characterise employers’ approaches to pension schemes in that way. We know how difficult things are, and we are in workplaces a lot. Most employers are obviously struggling with pension schemes. We have observed that some employers have used the wider environment and the credit crunch as another reason to try and offload pension obligations.
“But that is not what most employers are doing. Where you have got unionised workforces, the people they must represent have an interest in seeing the employer remaining in business and continuing to thrive,” she says.
While TUC members are less likely to work for companies that will level down – a union presence being one of the key reasons why an employer would not take such a step – increasing numbers will be in schemes that are switching to contract-based schemes, whether from defined benefit or trust-based DC. So where does the issue of governance of GPPs and group stakeholders sit in the order of Carberry’s priorities?
“Of course we are worried about investment risk, and that’s why for years we have tried to resist employers switching from good DB schemes to DC schemes where all the risk is loaded on to the employee. In the vast majority of cases DC schemes are second-best and that is being demonstrated now. We argued for a long time for there to be a different governance world for DC so that some sort of trust-based governance would prevail. We recognise that we lost the argument on that one,” she says.
So in light of recent events is it time to take this argument up again? “We haven’t stopped making the argument. I can see why the Government would have wanted to deal with the tension between regulation on the one hand and encouraging more provision on the other hand, and maybe the balance has not been right. This issue hasn’t been in the forefront of our preoccupations over the last few years simply because we have had other more immediate priorities. But, nevertheless, we still think it would be to members’ advantage if attention were now given to the governance of DC schemes,” says Carberry.
Carberry agrees that the UK is behind other countries when it comes to socially responsible investment through pension schemes, although she says interest is starting to increase.
“More and more schemes are signing up to the UN’s principles of responsible investment. But, in contrast to some other countries, we are at the beginning of this discussion, and certainly in the last few years members of trustee boards have been concentrating a lot more on the more immediate challenges they have been presented with,” says Carberry.
Age discrimination is an issue that the TUC is pushing hard on. Carberry is calling for the immediate inclusion of a clause removing the 65 limit for retirement in Harriet Harman’s Equality Bill.
“We are pushing for this quite actively. We think that the Government has got an opportunity now with the Equality Bill, which we are told is going to be published very shortly, to remove the mandatory retirement age at 65. They are supposed to be reviewing it, but we think this is an opportunity to get rid of it.
“If they do not, we will be greatly disappointed. But it is worth remembering that if they don’t do something in the Equality Bill, they will still have to argue it in the High Court that the mandatory retirement age is justifiable, and not all discrimination law experts think that they will be able to do that,” says Carberry.
The cost of public sector pensions is an issue gaining increasing coverage in the press. Last December the Confederation of British Industry turned up the heat by calling for an independent commission into the cost of public sector pensions and a review of retirement ages. It cited a figure of £915bn for the liabilities of unfunded private sector pensions. But Carberry accuses the media of unfairness in the way it has run with the story.
“There has been huge distortion in the reporting. You never see a story about a part-time dinner lady getting a pittance of a pension. You always hear about some stupendously paid chief executive of a local authority, but not the nurse who looked after your mum in hospital.
“The vast majority of public sector employees are not highly paid. They provide a vital service, and providing pensions to them is a necessary part of providing public services. It is also a curious argument that because so many employees in private industry get very poor pensions or no pension therefore public-sector employees should be brought down to their level,” says Carberry.
Carberry adds that, in her view, some of the calculations of the cost of public sector pensions have been dubious, and that critics ignore the fact that this liability will be paid over several decades. It also ignores the money that the Government would have to pay in benefits if these workers did not receive pensions.
“And is it also wrong to say that public sector employees haven’t made any adjustments to their pensions benefits, because it is not true,” she says. But the majority of public sector workers still have a retirement age of 65, do they not?
“For those employees that had a promise made to them that they could retire at 60, the Government has kept that promise, but for new joiners, the pension age has been made 65,” she says.
This issue is not going away, but has the Fred Goodwin scandal taken some heat off the public sector?
“I do not think so. The size of his pension is so extreme and so incredible that it stands outside most people’s comprehension,” she says. But the astronomical levels of boardroom pay has formed part of the TUC’s concerted response against those calling for reductions in public sector pensions.
“As ordinary workers have their pensions schemes closed, and are expected to work for longer, the UK’s top bosses are avoiding this collective belt tightening and retaining their gold-plated pensions.
“Many of the most lucrative pension arrangements are shrouded in secrecy, making it hard for investors to scrutinise them and ensure that bosses are accountable. If top directors can really justify their rewards, they must be bolder in declaring their pay and pensions to investors and their staff.”
Public sector pensions is just one area where Carberry’s views are at odds with many pensions professionals. Hardly surprising, given the fact she represents the people on the other side of the argument.
Who’s the fat cat?
Why the TUC thinks the real divide is between boardroom and shopfloor and not the public and private sectors.
• Directors of the UK’s top companies retire on pensions of over £200,000 a year, worth around £3m each, 25 times the average workplace pension received by employees of £8,100.
• Directors in defined contribution (DC) schemes received an average employer contribution of £91,700, with a contribution rate of around 21 per cent, three times the 6.5 per cent given to average workers.
• Top directors with the highest pension payments at each company received an average employer contribution of £149,600.
• Of the 19 financial sector companies analysed, only four companies disclosed the accrual rate they use to calculate pension benefits.
Source: TUC sixth annual PensionsWatch survey, which analyses the pension arrangements of 346 directors from 102 of the UK’s top companies.