“We fear Ofgem’s latest consultation on the future approach to pension funding in the regulated network businesses displays an attitude that is anti-defined benefit pension schemes. This is inconsistent with government policy and guaranteed to cause industrial unrest if pursued,” warned Prospect Deputy General Secretary Mike Clancy.
The regulator is proposing that companies split their pensions costs into three elements: liabilities for past pension provision; the ongoing costs of defined benefit schemes; and the cost of servicing a defined contribution scheme.
“Yet when Ofgem commissioned the Government Actuary’s Department to assess how the network’s businesses manage their DB schemes, GAD concluded there were no issues of concern to consumers,” said Clancy. “Moreover these schemes are underpinned by legal guarantees which frame the pension obligations of the companies concerned. There is no good reason for Ofgem to change the pension cost pass-through principles which have been well-established in previous price control reviews.”
Clancy said Ofgem wanted to mimic the pressures that are driving scheme closures elsewhere in the private sector. “This approach is based on equality of misery. The unions have won and defended the legal protections supporting these pension schemes and fought off an earlier threat from Ofgem last autumn. We will continue to prevent Ofgem from applying pressure to companies to consider closing their defined benefit schemes to existing contributors. Ofgem should leave pensions alone and focus on how its price regime impacts on health and safety, the skills shortage and the need to modernise the ageing energy infrastructure to meet the challenges of climate change.”
Prospect’s response says Ofgem is interfering out of a misguided sense that companies are running their pension schemes inefficiently. But changing the existing principles would create more costs and red tape. Prospect and the industry unions will raise this with Energy Minister Ed Miliband at this week’s TUC Congress in Liverpool. Prospect is also to meet Ofgem Chief Executive Alistair Buchanan.