The Law Debenture Debate 23 November 2004

26 Nov 2004

The Law Debenture Debate – Summary Report

On 23 November 2004 we held the inaugural Law Debenture Debate, where the motion that ‘This House believes that pensions are no more secure than they were on 5 November 1991’ was keenly debated before an impressive audience of over 200, and chaired by Nicholas Warren QC. 5 November 1991 was, of course, the day that Robert Maxwell disappeared, marking the start of the recent association of the words ‘crisis’ and ‘pensions’.

The table below shows how the audience described themselves when asked to do so by using the instant electronic voting system. The table also shows how the audience voted in an indicative ballot at the start and the final vote at the end of the Debate. 70% of the audience admitted that their involvement or interest in pensions started before November 1991.

The motion was proposed by the eminent economist and FT columnist, Professor John Kay. His starting point was the dictionary definition of ‘security’ as being well-founded freedom from apprehension. This prompted the question of whether individuals could have a high degree of confidence that when they come to retirement age they will not suffer a substantial fall in your standard of living and that they will be able to live through that retirement confident that that position will be maintained.

Professor Kay then compared the position of members of private sector occupational schemes in 1991 and in 2004. He contended that individuals were substantially less secure now. In contrast to the position in 1991, people were now likely to consider or be conscious that:

Defined benefit promises might not be met

If something does go wrong, the government or the financial services sector can’t be relied on to pick up the pieces

There is now a group of essentially orphan schemes where the companies which initially sponsored them have no ongoing interest.

Many are now more likely to be in defined contribution schemes, with the important risks of bad investment performance, longevity and inflation transferred to them and with the prospect of a pension related not to their average level of income over their working lifetime rather than their final salary.

Private sector providers of pensions can be inept or worse

The stock market can be extraordinarily volatile

The quality of public sector schemes might not be maintained

The substantial reduction in the real value of the earnings-related component the National Insurance scheme pension

A likely demographic crisis

Professor Kay was seconded by Philip Read, who is an Actuary and a Vice President of the Pensions Management Institute, and UK Pensions Manager of Carnaud Metal Box Limited and a Director of Metal Box Pension Trustees.

Limited. Philip Read emphasised the increased cost of providing pensions, resulting from the requirement to provide certain benefits, which had previously not been compulsory (such as improved rights for early leavers and increases in pensions in payment). When coupled with the removal of the ability to recover ACT, this had led to a significant increase in the cost of providing pensions, and to lower funding levels. As these costs are inflexible, the result has been the closure for many schemes. Mr Read also pointed to the new “moral hazard” provisions of the Pensions Act which he considered would make it virtually impossible for employers to restructure their businesses and asked “What will happen to security of jobs and pension expectations in these circumstances?”.

Peter Askins, a career civil servant of over 30 years’ standing and currently head of the DWP’s Policy Presentation Unit, opposed the motion. He pointed to the following improvements in the position since 1991:

The legal and regulatory system at the time was completely ineffectual and unable to protect the Maxwell pension funds

The Pensions Act 1995 added to security in three main ways: the requirement to “whistle blow”, a higher profile regulator, and the creation of a raft of criminal offences for professionals if they fail to comply.

As a result there has not been another ‘Maxwell’, and it is now a lot more difficult for such a situation to recur, and it would be a much easier to resolve

The Pensions Act 2004 introduces a new regulator focusing on risk and with greater powers than its predecessor

The PPF will provide a level of assurance that pensions promises will be kept, at a cost which is forecast to be reasonable (particularly when compared to the costs of other forms of insurance)

The government has now made a commitment of public money to assist those who have suffered by establishing the Financial Assistance Scheme

Peter Askins also thought it unfair to blame those involved with pensions for the changes in the financial environment. Rather, they should be judged on how they respond.

Peter Askins was seconded by Tim Cox, a partner at Linklaters. Tim Cox considered that the question to ask was whether members are more likely to receive what they have been promised, rather than about the promise itself. Those in the public sector have the security of the taxpayer’s support. Those in money purchase schemes are certain to receive a pension of some kind. Those remaining in defined benefit schemes enjoy the benefits resulting from recent legislative change. Mr Cox also noted the large increase in the number of pension scheme lawyers since 1991, and considered that this could only serve to increase security!

Substantial and thoughtful contributions from the floor were made by Peter Tompkins, John Butterfill MP, Donald Duval, Hilary Salt, Simon Hill, Jeremy Goford, Jonathan Punter, Michael Pickard, Alison O’Connell, Paul Greenwood and Andrew Campbell-Hart.

Following final submissions, the final vote was taken. The House voted for the motion, with 59% in favour and 41% against. Overall, this was very little changed from the indicative vote which had been taken at the start of the evening, when 60% supported the motion and 40% opposed. However, behind these similar figures, there had been a significant number of individuals who had changed their minds. The table below shows the proportion voting for the motion in the various categories:

Description	Audience	Pre-Debate (in favour) %	Post-Debate (in favour) %
Pension scheme trustee	19	66	71
Pensions scheme manager	13	71	79
Pensions scheme adviser	42	59	55
Interested because of work	17	42	35
Interested observer	8	60	67

In view of the enthusiasm of all those who attended the Debate, we are pleased to be able to announce that we plan to hold a Debate on 30 November 2005, when the motion will be: ‘This House believes that pensions are much too important to be treated as just another form of savings’.

Pension Trusteeship

Back to News