Section 67 Revisited
Oh no! Here we go again. Iíve just heard one of the more worrying things Iíve ever heard in my life. It seems that employers are saying that it would be very helpful as far as pension funding goes if they could be given the right to reduce pension scheme membersí accrued pensions. Well yes, of course it would be cheaper for employers to pay for their pension promises if those pensions could be reduced, but thatís just the same as saying it would be cheaper to pay an employeeís salary if they just didnít earn so much. Worse, I guess, itís saying that if employees gave back a chunk of their last yearís salary the company balance sheet would benefit. Hmm!
Pensions from defined benefit company pension schemes arenít discretionary payments that the employer has promised to have a stab at providing, they are deferred pay, plain and simple. They are complex arrangements, yes, and itís hard to pin down from day to day what amount needs to be put aside when people defer pay in this way, itís true, but thatís why employers and trustees need to keep monitoring final salary schemes and ensuring all is on track financially.
Employers seem to be saying that they have been caught out by the way mortality and longevity rates have shifted and that the extra generosity loaded on them by central government in the 1980s and 1990s is the straw thatís going to break the camelís back. Well, Iíve some sympathy with the last point as many of you who have heard me speak at conferences will know, but I think employers should have tried to stop the government pushing costs onto them long ago, not now when itís too late. In a way, those of us who always seem to be the ones who immediately point out the likely long-term dangers of political meddling in private (and voluntary) pensions could probably claim it would save a lot of pain later if people would just listen to us sometimes. (Whatís happening with the National Pension Savings Scheme fiasco at the moment is a good case in point.) But thatís not the way it is. The increases in generosity lumped on voluntary occupational pensions way back then were accepted without a whimper by employers and trustees. All thatís happening now is that those chickens have come home to roost and the costs have to be met.
My worry about all this (quite apart from the fact that I am an owner of past service pension entitlements myself) is that it is sending all the wrong messages to people with past service and deferred pensions in company pension schemes. If weíre not careful it will be saying to them something like ďget out of there before your employer, or ex-employer, takes away some of the deferred pay you left in his keepingĒ. Thatíd be a bad message all round which, as well as completely undermining any residual faith in occupational pension schemes, could easily panic people into making uneconomic personal decisions. Particularly so as the rules governing the proper valuation of deferred pension rights are all over the place right now. Like so many of the rules governing our pensions, unfortunately. (Anyone who wants to read up on the uncertainties regarding the transferring of pension rights from final salary occupational schemes could do worse than to read my recent BeeLines on the subject. Theyíre here at the end of these ethereal links if you want to revisit them:)
I only know what Iíve read about this stuff in the papers, but my worries are my own. If what Iíve read is right then some are saying that this idea has received some sympathy from government ministers. Well, letís hope not. Quite apart from anything else the timing would be rubbish. We need fewer pension panic headlines in the press, not more. In fact, none would be good.
15 June 2006
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