Pension Tension

Much rejoicing about pensions….Yes, they’re going to be more expensive. Hurray! People will be worried. And anxious. Three cheers for Europe….And that appears to be it from Better Together.


But is the European Commission decision on funding of cross border pensions really all it seems? I’ve been reading the regulations, having grown tired of sticking pins in my eyes. The most striking aspect is that there is no provision for the situation Scottish independence would create. Like the wider question of Scotland’s EU membership, it simply isn’t covered by the treaties or regulations which means a compromise will be required to meet the aims of the legislation and at the same time to accommodate the needs of an industry serving millions of EU citizens.

The main purpose of the pension rules is to ensure that pensions are properly funded so they can guarantee to pay out to their pensioners. Any draconian requirement to have them funded immediately with money the companies simply don’t have and can’t  reasonably ask their members to provide could precipitate the collapse of funds, leaving millions without a pension…not quite the peoples’ safeguard the EU would like to pretend it is.

When the cross border rule was introduced in 2005, companies covered by it were allowed three years to meet the requirement to be fully funded. So there is precedent for the idea of recognizing the difficulty full funding creates and allowing an acceptable timetable for compliance. Incidentally, in case you were wondering, the penalties for failing to comply with the EU regulations are…how can I put this…not crippling at £5000 per trustee and £50,000 per company. So if you were minded as a company to hold out for a better deal from Brussels, you wouldn’t exactly have sweaty palms awaiting sanction.


Many companies did get their funding up to date, although it’s worth pointing out that by far the biggest group of such cross border pension schemes in Europe are based in the UK or operate in the UK, amounting to more than half the entire European total, so this is very much a British-based issue in Brussels’ eyes.

This is what the National Association of Pension Funds says: ‘The number of cross-border schemes remains static at 84 …There are 25 which are based in the UK and provide pensions for workers hosted in Ireland, then 14 that are Ireland–UK. The next most popular arrangements are UK-Netherlands (4 schemes) and Belgium-Luxembourg (3).’ It adds: ‘At a time when the EC is arguing that a new Directive is needed to promote cross-border pension provision, these figures provide further evidence of the lack of demand for cross-border schemes away from the UK-Ireland axis. The current system clearly permits the UK and Ireland to have some (albeit modest) numbers of these schemes; many readers will conclude that there is less demand in other Member States.’

The fact that this is a business model heavily concentrated in one member state may lead those with us conspiracy theory issues to wonder if our pro-British friends in the Commission are at it again. The entire pensions industry is puzzling over the reversion from the original position and it is just possible, is it not, that throwing another spanner in the wheels of Scottish independence movement – temporarily, until, say after September – would be worth the effort, especially if hardly any other country is troubled by it enough to complain. But that’s just my cynicism. Interestingly, I spoke to the National Association of Pension funds who think the Commission was subject to industry lobbying and, as this decision runs contrary to the intention of the plan and undermines all the associated reforms, that they will return to it in due course. And Kevin LeGrand, head of pensions policy at Buck Consultants and immediate past president of the Society of Pensions consultants, expressed concern that the debate over pension provision was becoming too heated.  There was unhelpful scaremongering (Who is Greg McClymont?) and he said it was “inconceivable” that the EU would not allow transitional arrangements for schemes.

The other option for companies is to split schemes along member state lines, exactly the opposite of what the Commission says it is trying to do – achieve uniformity across the community. Does this mean that smaller schemes like Scotland’s at maybe 10 per cent of a larger UK scheme would be poorer with higher charges and lower pension payouts?


Not if you look at other smaller European countries. Let’s start with Denmark. Here in addition to a state pension as we would recognize it, there is also a compulsory additional scheme which operates like a private pension provider but in the national interest. It’s called ATP.

The employer pays two-thirds of the ATP contribution and the employee one-third. The maximum contribution for a full-time employee in the private sector corresponds to 1% of the earnings of an average full-time employee. Pension benefits depend on how long contributions were paid and accounts for a maximum of 41% of the state basic pension. The pension is paid out either as a lump sum if the balance is small or in the form of an annuity. ATP has benefited from scale economies and compulsory worker participation and has been able to operate with high efficiency and low costs. In recent years, it has been a leader among Danish pension institutions in adopting innovative investment policies and has enjoyed an enviable record of high investment returns and low operating costs.

Not enough for you? Well ATP is now so successful it is operating here in Britain. Not on a cross border basis but as a British-registered company and it’s cleaning up. They looked at the UK and saw one of the only countries in the developed world that has had a negative return on pensions. By contrast, their fund has average 10.3% a year. It was 26 % last year.  (This is an outfit from little Denmark, remember, showing mighty, broad-shouldered Britain how it’s done). The thing to bear in mind is that it isn’t, as the Unionists say, how big the fund is, it’s how big it is in relation to the number of pensioners it serves.

Here’s what Patrick Collinson of the Guardian said: ‘Now the government, via its new auto-enrolment regime, wants to throw the 10 million UK workers without pensions into private savings schemes. The old adage of throwing good money after bad comes to mind. It is unforgiveable that low-paid workers, clobbered by rising bills, should be expected to pay into a scheme with no assurances about the outcome. In Denmark there are guarantees. Its citizens at least know their money will grow and provide something decent in retirement. But British workers? We will have to rely on all those brilliant guys in the City to manage the money properly…’


And we seem to have lost the idea that pensions are by definition long-term investments designed to accumulate steady interest. The Danish boss of Now:Pensions says our problem isn’t deep pockets but greedy investors who earn bonuses for short term profits by trading shares that would deliver a solid return over 40 years, the length of perspective ATP adopts. Another advantage over Britain’s ropey annuities industry, now being systematically destroyed by our own government, is that ATP also runs the annuities, not the fee-grubbing private sector.

Little Denmark is showing how a reformed Scottish pensions industry can not only provide higher pension returns for its own people but shine a light on the fast-buck mentality of City London firms whose object is profit, not pensions.

Which brings me to another pension issue that should not be lost in this debate…the UK government’s proud boast of allowing pensioners to do what they wish with their pension pot. Here’s what the people at ATP say about it. Morten Nilsson, CEO of NOW: Pensions: “There’s no doubt that the annuity market in its current form is out-dated and ineffective. Giving savers greater flexibility over how they access their pension pot is good news. But by handing them a completely free rein it feels like the Chancellor is throwing the baby out with the bathwater.’

In Australia where they already have the system Osborne announced, 75 per cent of retirees take the cash out of their fund instead of taking an annuity. So the pensions business is, like much of the Better Together case, built on illusion – that Big Britain can carry you home, the same Britain that is failing its own pensioners.












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15 thoughts on “Pension Tension

  1. Derek, right on the money! (Sorry)

  2. Obviously this was mainstream news last night and today, but as usual “more expensive” blah blah.

    How much more expensive ? 1 pound / 1000 / 10% ?? Without numbers, which I can find nowhere its meaningless.

    • looked around under ATP and found this in a this-is-money article from 2011:

      UK – Now Pension, the ATP-backed multi-employer trust, today revealed it would charge members an annual management charge (AMC) of 0.3% – matching the fee levied by the National Employment Savings Trust (NEST).

      ATP says its calculations show its low charges can boost a pension pot by 31 per cent when matched up against a 1.5 annual management charge.

      From what I have read I think UK firms AMC is around 1.5%
      Does that help answer your question?

  3. We shouldn’t lose sight of the fact that properly funded pension schemes are in all the scheme members’ interests. It’s a matter of progress though and not flicking an instant switch.

    What these schemes would give for Gordon Brown’s tax grab to be refunded.

  4. It does seem likely that sculduggery from the Unionist camp is involved in the strange case of the EU pensions turnaround. Perhaps the facts will leak out soon. However, the situation just reverts to the status quo ante which was covered in the White Paper and in a Pensions Paper. The Yes Campaign website covers it. It would be useful if the more finance savvy members of the Business for Scotland or Newsnet Community could analyse the situation.. Meanwhile, we can be certain of our ability to run a pension scheme at least as well as the City of London. Edinburgh is the second largest financial centre in Europe, (after London). .

  5. Hi. I just wanted to say that finding Derek’s blog has made me feel less isolsted – currently stuck in smug, middle-class, four wheel drive, private school, brit nat Edinburgh New Town. Finding it very difficult to find Yes voters here…

    • Dr JM Mackintosh

      Don’t worry Muddy,
      You are not alone in Edinburgh by a long way.
      Trust me – I am a Doctor.

      Today is a good day – £ is ok, Barroso is history and No campaign a complete shambles.

    • Quite a lot of us Yes voters up in Merchiston Muddy.

  6. Of course, the Thatcher government “deregulated” SERPS, because that’s what sovereign governments in Westminster can do. Sigh.

  7. I was a little surprised that the EU stepped back from this move. There is talk that continental insurers lobbied to retain it. If so then the Better Together types should peeved not happy because it was London that stood to gain. There may be other issues though. There is a never ending cascade of mis-selling sagas and there is a possibility that pensions are next in the frame.

    Who knows, if there is an investigation in the City, pension firms might starting praying for a Yes vote.

  8. Subscribing till September 18th – best I can do

  9. Douglas Gregory

    In fairness to the Australian superannuation scheme there are some features that should be noted (and which make it a reasonable model at least).

    Australian employers must pay an additional 9% on top of your salary into your super, you can then, as individual, add extra money (up to $25 000 a year – taxed at less than half the normal rate). This can build your fund quickly in a very tangible way

    You can choose who manages your super fund – a private provider, a union backed scheme or by yourself.

    You can then access your super between the ages of 55-60 and do with at as you wish. This is the quid pro quo for what many Australia’s do – adding extra funds to their super as a low tax vehicle for savings. This is a win-win situation. It promotes a savings culture and it encourages people to make adequate provision for their old age. People don’t grab the money and spend it on yachts, they divest of their super and usually buy an income bearing asset like property.

    It should be noted that Australia is a more egaliterian country than the UK. People have a sense of fairness and ‘doing the right thing’ (not in a ‘what will the neighbours think’ sense more in a ‘what is morally right’). Pensions are means tested but I know I several people who could claim a small pension but don’t as they don’t think they need it. There is less of a sense of entitlement and a greater sense of working hard and being rewarded. The state supports this and the financial regulator does not put up with the shenanigans that the City think are normal.

  10. Dr JM Mackintosh


    On my travels around Europe the one thing that Scots seem to have is a reputation for is extreme financial prudence – i.e. being very mean. I am not sure how they got this impression perhaps they met some Aberdonians.

    However, on that discussion, I would like to join your wine club as I am partial to the odd red wine myself. However, it is not clear which rate applies to your platinum service. Therefore, is it possible to get the platinum service for the minimum £10 per month?


  11. I very seldom “partake” – a toast to the New Year about covers it – but surely, James, freedom is worth £25 per month for 6 months!

    Come on, fellas, dig deep!!

    Good news today from a Tory Government Minister taking us closer to a YES victory.

  12. I don’t understand. Do we actually get any wine?

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