7 Comments on Final salary pensions: RIP

Michael on Mon, 4th Jan 2010 6:10 pm


“a combination of a lack of public realism and political courage conspiring to store up huge future problems.”

Quite right. It is a real crisis, for all but those at the very top. The increase in savings presumably reflects people paying off (some) credit card debt, rather than any increase in long term saving for retirement.

All the parties should be pressed for details on their proposals for this crisis.
It is very hard to see the next Government (whatever colour) sticking with the current arrangements on public sector final salary pensions – the gulf between them and the private sector has become too wide. The changes may be very dramatic indeed because the situation was unsustainable well before the curent financial crisis.

Matt Grist on Tue, 5th Jan 2010 10:18 am


I’m not sure final salary pensions are the answer. Someone I know’s father is a retired head of a primary school. His pension is more than my salary and he retired at 60. He worked hard and it was a stressful job, but can a person really expect the rest of the population to pay them over 30k a year until they are 90? He and his wife (who also has a pension though not as big) have paid off their mortgage and have inherited money from their own parents dying. So they are more affluent now than when they were working.

This ‘aspiration’ seems to me one we should get rid of. It is a baby-boomer dream based on a brief period of Western economic dominance pre-globalisation. It should not be considered a ‘right’ to be this rich in retirement and we will bankrupt our country if we continue to offer such pensions. So I agree with political courage and public realism lacking in general with regard to pensions, but final salary pensions declining is not something we should mourn.

Tom P on Tue, 5th Jan 2010 10:22 am


“In part, the collapse of final salary schemes (which were generally well managed and with low fees) came from an unwillingness by employees’ representatives to renegotiate the benefits of these schemes even as the evidence of their non affordability to the business and unacceptability to shareholders grew.”

Hi Matthew

I don’t know here you’ve got this idea from but it doesn’t tally with my experience.

I used to be involved with a group of trade union pension specialists who are the folks who deal day to day with changes to individual company schemes. The idea that these people (who would be the ones that would have been doing it) were standing in the way of negotiating changes to keep schemes as they were regardless of the consequences is wide of the mark in my view.

By far the most common complaint was that they had very little ability to prevent any changes. This is partly because pensions weren’t typically covered in collective bargaining, partly because the initial wave of closures was targeted at new entrants (so existing scheme members couldn’t be relied on to support any resistance to changes), and partly because trustees (many of whom are of course union reps themselves) were willing to be pretty pragmatic about changes to schemes. The first big wave of closures of DB schemes – to new members – therefore went through (and continues) with very little orgainsed resistance from unions.

Even the second wave of closures – stopping accruals for existing members – has not met with much resistance. Again I can remember having conversations with union officers who would say privately that they accepted that the schemes needed to close if the sponsoring employer was to survive.

Where there has perhaps been a problem on occasion has been when companies have sought to alter accrued rights. But this is as much a legal issue (too boring to go into detail) as it is the work of the unions.

I can honestly say that the view of the union pension geeks I know about the disappearence of final salary schemes is one of despair that the labour movement was able to do so little to stop it.

Michael on Tue, 5th Jan 2010 1:04 pm


Very interesting to read Tom’s comments on trade union attitudes, talk about not recognising the thin end of a thick wedge.
Also one of Matthew’s themes, our pronounced tendency to significantly discount the significance of events and risks that will not impact on us until well into the future.

In reply to Matt, I wasn’t suggesting a return to final salary pensions (I don’t think Matthew was either) – the main issue is that around a third of working people aged from 40 to 60 do not have any pension savings at all (see link below). And hardly any workers under 25 do – and at present options/incentives for starting one are not straightforward. The rising burden of student debt on the under thirties is a new big obstacle to pension savings too.
The solution surely has to include some kind of compulsory (or at least, opt-out, not opt-in) Government backed scheme mix of personal and employer contributions (but how much?) with changes to the current annuity purchase rules, and sufficiently strong incentives for individuals to save more than the minimum.
Among many other open questions, what role should the Banks, other private sector firms, and stock markets have?
Perhaps a cultural theory analysis would help illuminate the debate…

Some figures from Joseph Rowntree Foundation
http://www.poverty.org.uk/65/index.shtml

Tom P on Tue, 5th Jan 2010 1:09 pm


“The solution surely has to include some kind of compulsory (or at least, opt-out, not opt-in) Government backed scheme mix of personal and employer contributions”

that’s the Personal Accounts scheme in a nutshell. But as Matthew says most pensions people think the contributions (8% in total initially) are too low.

matthew taylor on Tue, 5th Jan 2010 4:10 pm


Thanks Tom, Michael and Matt. You’re right Michael, I wasn’t saying that DB schemes are sustainable in the form they generally existed twenty years ago. To save them we would have needed to up contributions and been more flexible about entitlements. I take your point Tom and admit this was an assumption I made partly on the basis of the current resistance of public sector unions to address the cost of and growing public resentment (some of which, I know, is unfair) of public sector pensions.

Personal Savings Accounts on Sat, 17th Apr 2010 10:23 am


Hello

woooooooooow Good ideas

Olivia

pensionsavingsaccounts

Tell me what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!