Pensions: From Final Salary to the Final Straw

Issue section: 

When is a fraud not a fraud? This is a question that millions of people will be asking themselves as increasing numbers of employers reduce, or default on, pensions that workers have been paying into for years.

One of the major causes of the growing pensions crisis is the closure of 'final salary' schemes. Fifty six percent of companies which have reviewed these in the past five years have closed them to new applicants according to consultants Watson Wyatt, and many existing employees have been switched to more risky 'money purchase' schemes. On average bosses pay half into these schemes what they would to final salary pensions.

Final salary pensions were meant to guarantee a retirement income calculated from the salary in your last year of work and your length of employment. Companies had control over the investment of the funds--hence their initial attraction--but they were meant to be liable for any shortfall. In the boom years of rising stockmarkets and higher interest rates many companies took 'contribution holidays', ie they stopped paying into the funds. But now profits are tighter many firms, including Sainsbury's, Iceland, the four biggest banks and BT, are abandoning the schemes.

Royal Ordnance, which produces ammunition for the Ministry of Defence, has taken a 12-year 'holiday' from pension contributions, and has the cheek to demand that workers pay up to £20 a week extra if they are to receive the pensions promised them. Over 4,000 workers at nine factories have voted more than nine to one for industrial action over the issue.

This sort of action, which has led to large protests in much of continental Europe, is necessary if the rip-off is to be halted. The government has proven itself totally unwilling to stand up to the corporations responsible for the crisis, the blame for which, as Amicus general secretary Derek Simpson has said, they are trying to shift 'from the perpetrator to the victims'. So instead of offering workers the protection recommended by the pensions advisory service Opas, New Labour's work and pensions secretary Andrew Smith has told us we will 'either have to save more or work longer, or some mixture of both'. New public sector workers are to have their retirement age raised by five years to 65, and rather than restore the link between the state pension and earnings that it promised in opposition, New Labour wants to 'encourage' people to work past 65. GMB general secretary John Edmonds has promised to oppose this 'work till you drop culture'.

Government proposals will not give workers the protection they need. Take the example of steel company ASW, which went bust in July. Hundreds of workers at the Sheerness plant will get substantially less than their full entitlement--perhaps only half--and many Cardiff workers who have contributed for up to 30 years could get nothing. Under current rules a company which goes bust must prioritise existing pensioners before sharing out whatever, if anything, is left to current workers. Two ASW directors quite legally took early retirement shortly before this happened, assuring themselves of pension packages worth more than £140,000 a year, with an eventual cost of about £2 million. Under government plans City fat cats will still be able to grab up to £1.4 million before they lose tax relief, and former CBI boss Adair Turner will head the pensions commission.

Companies will still be free to unilaterally wind up final salary schemes until April 2004. 'Independent trustees', appointed by the liquidator to administer pensions of companies that have gone into receivership, will still be able to charge extortionate 'costs' from pension funds.

However, not all pensions are subject to the slings and arrows of outrageous fortune making. The Lord Chancellor, Derry Irvine, is to get a £180,000 lump sum and an annual income of £90,000 when he steps down from his government post. Nice pension if you can get it.