The scandalous changes to company pension schemes

[TrueBlueTerrier]

https://www.theguardian.com/money/blog/ ... on-schemes" onclick="window.open(this.href);return false;

A man in his 40s receives a pension projection that tells him his retirement income is going to collapse from the £38,000 he was expecting to £18,000. His company is having to find a sum equal to 45% of his salary to keep the pension scheme going, a crucifying amount for any employer, and the costs will keep on spiralling. It says it has no choice but to slash the scheme to ribbons.

This is the sort of dilemma facing the workers, and bosses, of Royal Mail and the Post Office. Strike action is looming – and quite rightly too, because the cuts are equivalent to someone losing £200,000 or even £300,000 over the course of their retirement.


We are about to enter a new era of trench warfare over pensions. The early battles were easy victories for the employers. They decided to close their final-salary schemes to new entrants, but existing workers were protected and were able to carry on chalking up their entitlement to, let’s face it, rather generous retirement payouts. Nobody seemed to care too much about the millennials who were missing out on what their parents took for granted. Next came the more thorny shift from paying out pensions based on final salaries at age 60 or 65 to cheaper ones based on a “career average” salary. Again the employers won, but it was more bruising.

But now we’re moving into far more dangerous territory. The employers have begun to target existing workers, many in their 40s and 50s, who are in these career average schemes, saying: “You can keep what you’ve built up so far, but nothing beyond that.” In pensions terminology it’s called stopping “future accruals”; Royal Mail, the Post Office and Marks & Spencer are all considering it.

To these companies it’s a foregone conclusion. They can’t possibly afford 45% of salary as a pension contribution, or in M&S’s case 34%. The snarky retort is that they’ll always find the money to pay silly sums into their chief executive’s pension, but not for the workers.

The more serious retort is why do employers think the only alternative to “gold-plated” final salary schemes is the lousy world of stock market-based schemes, where the company pays in a pittance and workers have no guarantees about their retirement income?

M&S’s move is shameful. It is telling longstanding workers that the cap on company contributions in its new scheme will be 12%. That’s an enormous cut from 34%. Is there no half-way house? Every time an employer closes a final salary scheme and places workers into a “defined contribution” scheme it shifts all the risk on to them. How about sharing some of the risk? How about saying: “We can’t afford to guarantee pensions of up to two-thirds of final salary – but we could underwrite a promise that your stock market-based scheme will at least give you, say, 25% of your final salary.” It would then be on the hook for some, but not all, of the risk.

At the moment we are letting employers get away with lots of gobbledegook when they say pension schemes are falling into unaffordable deficits. You may have noticed that the FTSE has soared since Brexit. Some schemes are almost in rude health. The problem is actuarial – gilt yields have slumped, which has the mathematical impact of deepening a scheme’s projected deficit. It doesn’t mean the scheme will actually be in deficit in 10 years’ time, but it does give employers a good excuse to shut them.

We’re between a rock and a hard place on pensions. Until now it is workers who have given up all their rights. It’s now time employers began to show a bit of flexibility – and rather a lot more long-term responsibility.

[jetblack]

Good article.

One point I would make is that one of the underlying issues here is that RM are now in competition with companies who don't have anything like the costs ( even "pro rata"/lb for lb) RM do - in this case, with regards to pensions. In other words, finding the extra needed to keep the scheme afloat would (possibly and potentially) make RM uncompetitive.
The solution - increased unionisation amongst those working for our competitors, and all of us standing together to bring others up to our current level - not dragging us all down to their level.
This, and a more equitable sharing of risk than is currently on the table - as mentioned in the article.