The demise of final salary pensions has now made the headlines on News at 10 and was the topic of a full 10 minute business news slot on Radio 5.
It’s now officially a hot topic and not just amongst the navel gazers within the financial services industry.
My worry is that, rather than take this opportunity for constructive discussion, it will turn into a vocal (and, most likely, unproductive) slanging match between employers and unions with the Government, ultimately, proposing inappropriate policy reforms in attempt to appease both bodies.
Whatever else you might say about the current Government, they have introduced fantastic improvements in the security of members’ pension benefits. The introduction of the Pension Protection Fund (PPF) and the strengthening of minimum funding standards should be applauded.
Unfortunately, these positive developments will likely be overshadowed as a row develops between the Unions claiming that companies are, to quote (the BBC quoting) Brendan Barber, “using the recession as an excuse to make savage cuts in pensions” and companies claiming that (according to the recent PWC survey) final-salary pensions are “unsustainable”. This against the backdrop of overly generous public sector benefits, inadequately funded and cross subsidised by the tax payers.
Irrespective of where you stand in the debate, there are some fundamental points:
- The typical structure of defined benefit provision as it stands is unsustainable and it is unreasonable to expect employers to continue to foot an open ended commitment. They do, however, have a part to play in providing for their employees post retirement.
- Individuals need to recognise the importance of providing for retirement. They need to take a reality check as to what their expectations are, how likely they are to achieve them and what contribution they need to make.
- The Government needs to legislate to properly fund for an ageing population and a shrinking workforce.
There has to be some recognition of collective responsibility and, rather than a slanging match, representatives of all parties should take the opportunity to sit down and thrash out a solution that is reasonable, affordable and sustainable.
I live in hope.