Facing up to a new world for pensions

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My employer (normally quite nice and cuddly) has just done something rather nasty that most employers have already done. It's served notice on us hard-working employees that it's pulling the proverbial plug on the company's deluxe defined benefits pension scheme.

Although there's a consultation period, it's as good as a done deal. Come April, when the tulips are in full flower and the daffodils bring us all out of our miserable winter hibernation (as well as a period of horrible local government job cuts), the final salary pension scheme will be closed.

And when I say closed, I mean it will be closed good and proper – not just to new members (the usual first step), but to future accrual too.

My benefits – economy and strength of employer willing – will be preserved and will increase in line with inflation (RPI). Hopefully, I will live long enough to enjoy some of the fruits this pension could offer in retirement – although the profession of journalism is not renowned for its life-enhancing values. We seem to die young, addled a little by a combination of generous portions of rich food and too much whisky.

Going forward, and assuming I survive in employment until spring next year (yes, these are difficult times for us all, even journalists), any new pension contributions made on my behalf will go into a new, sparkling, all-dazzling defined contribution plan.

It's a weird scheme, this new defined contribution plan. I won't bore you with the details, but essentially my retirement hopes will depend primarily on the state of annuity rates when I come to turn my pension fund into a lifetime income.

Am I upset over this enforced move from a defined benefit world where my pension builds up essentially according to the number of years I have slaved away and my final salary? Of course I am. But that's life.

The world of works pensions has changed - and before not too long, all defined benefit schemes will be shut to all and sundry. Anyone saving towards a pension in the future will either be dependent upon a defined contribution pension (a money purchase arrangement) or the new government-sponsored National Employment Savings Trust (NEST).

In light of this seismic change in work pensions, two things do need to happen.

First, employers must not be allowed to push defined benefit pension schemes into the long grass and, while nobody is watching, renege on some of the promises made to members. It's a distinct possibility, given that as defined benefit schemes close they will become ever more detached from the present workforce.

Hopefully, The Pensions Regulator will not allow this to happen. Since setting up in 2006, it's done an effective job in nudging (and occasionally elbowing) employers into ensuring they continue to put money into these schemes. Where deficits exist (and some such as those on the Royal Mail and BT pension schemes are frighteningly huge), it's cajoled employers to put deficit 'recovery' plans in place.

Now it needs to continue to cajole, while ensuring properly 'qualified' pension fund trustees are not trampled all over by employers seeking to reduce their unquantifiable financial commitment to defined benefit schemes – unquantifiable in terms of how long people like me and you are going to draw our pension before keeling over.

Some employers, no doubt, will try to persuade workers to transfer benefits out of expensive defined benefit plans, with some offering a cash bung to sweeten the process. Such moves in nearly all cases must be resisted by scheme members – and be met with a heavy hand from the regulator or the Financial Ombudsman Service.

Secondly, and more importantly, we must all make a commitment to saving more of our hard-earned money into pensions. The new pension world of defined contributions may not be to everyone's taste (mine included) but it's here to stay. We all need to make the most of it.

Save, save and save again. If we do that, when it comes, retirement will not be that bad after all.