Monday, 9 April 2012
Final salary pensions are dead. They have been for over a decade now. The public sector unions are either being King Canute like or don't understand the economics of providing pensions - or both!
A number of factors but primarily increasing longevity - we are living longer - means final salary pensions are no longer affordable. No large company offers them any more. Some are even moving to withdraw them for existing employees or members of the scheme. They are too expensive.
The offers on the table for the public sector seem pretty reasonable. Average salary schemes protect the lower paid and CPI growth rather than RPI growth at least gives inflation proofing based on the cost of living rather than none.
I'm sure there are still aspects to negotiate over but I hope a settlement can be made that is reasonable for us to pay for - that is 'us' who no longer have such pensions widely available in the private sector!
Where the unions have a point is that it is not a race to the bottom. The withdrawal of final salary schemes and the oncoming auto-enroled pensions mean employers are tempted to put far less into pensions than they did before. Employers running a final salary scheme might have been putting 15% of their payroll cost into pensions. In the future it could be down to 4%!!
We need alternatives for big British firms that allow them to provide decent pensions but the big issue is - as Tom McPhail the pensions commentator said tonight - that employers need to put more in their employees' pension pots.
Some form of guarantees for workers' pensions may be important but getting employers to pay more is vital.
We can accept that pensions must be paid by a combination of employer and employee.
We can accept that the risk taken by employers should be reduced and that there can be fewer guarantees (which cost and are hard to deliver)
What we shouldn't accept is employers paying a quarter of what they used to into workers' pensions.
All power to Steve Webb. He is proving to be an outstanding minister. Auto-enrolment is great and will bring a lot of workers, previously unpensioned, into the fold. But lets do this work at finding a decent replacement for final salary schemes for larger companies who have always offered pensions, to offer in the 21st century.
This is the real fight for pensions that the unions - and others - should be fighting.