The Great Debate UK
-Simon Banks is a principal at Punter Southall. The opinions expressed are his own.-
This summer we have seen the closure of many “defined benefit” pension schemes, which provide benefits based on a formula linked to salary. They are closing because they are reliant on employer support and have either become too expensive, or have grown too large relative to the employer.
Most employees will probably outlast the business currently employing them, so a shift away from a pension model reliant on employer support may seem sensible to many. The problem is that “defined contribution” schemes, usually offered as a replacement, can be ill-suited to those lacking financial confidence.
The battleground between government and the pensions industry is therefore over “shared risk” schemes. These have been suggested as a middle-ground option that would be less onerous for employers and yet provide some useful guarantees to employees. The government regards these proposals as tainted by self-interest, and is optimistic about what member training and communication can do to improve ‘defined contribution’ schemes.
- Nathalie Harrison has worked in the broadcast and media industry for over seventeen years. A specialist in business change management in the media industry, her work has included major technological and production transformation projects for clients across the globe. Nathalie is currently Senior Business Consultant in the Professional Services division of Sony Professional in Europe. The opinions expressed are her own. -
The current economic climate has led an increasing number of businesses to seek new ways to improve business efficiency and function through change. When combined with technological advances, the media industry is one sector that has experienced record levels of change and faces some unique challenges when it comes to change management.
– Neil Collins is a Reuters columnist. The opinions expressed are his own –
LONDON, April 8 (Reuters) – Aon’s website says it covers the entire “life cycle” of the corporate pension scheme, embracing advice, implementation and ongoing delivery of schemes. It doesn’t say that Aon is now helping what might better be described as the death cycle of company pensions.
Britain’s system of defined benefit schemes, under which employees are promised a level of pension linked to their salary, is in its death throes, held under water by the increasingly onerous obligations imposed on companies by successive governments. What started out as an aspiration to look after retired employees has been progressively raised to a liability of the employer equivalent to a bank overdraft.
The obligation to recognise and service this liability is now life-threatening for many otherwise viable companies, including high-profile businesses like British Telecom. Final-salary schemes are being ditched wholesale, replaced by defined contribution plans where the employee takes the investment risk.
Now even these schemes are under threat. Aon, which specializes in “human capital consulting” has decided that its own human capital can get by on rather less. It’s cutting the contributions it makes to its scheme and inviting its employees to make up the difference.
Aon’s move is likely to be widely followed, but it is merely an opening shot in what promises to be a long war over pension entitlements. A report by Lord Turner, now the chairman of the Financial Services Authority, concluded that we needed a National Pensions Savings Scheme, known jokingly in some quarters by the inaccurate acronym “NatsPiSS”.
The UK government swallowed his recommendations whole, pausing only to change the name to “Personal Account”.
From 2012, every employee who does not opt out of a Personal Account will be forced to put 5 percent of his salary into the scheme, with the employer contributing a further 3 percent.
This is painful, especially for younger workers with more urgent claims on their post-tax income, like a mortgage or children. It’s also nothing like enough to provide a comfortable old age, even for a worker who contributes for 40 years. Paul Macro at consultants Watson Wyatt calculates that his retirement pot would buy a pension of about 16 percent of the salary it replaces.
Meanwhile, the sun is still shining in the public sector, where the UK state underwrites the colossal cost of providing near-universal final salary schemes, and leaves the liability off its books. It’s also high summer for British Members of Parliament, whose defined benefit pensions cost around 32 percent of their salaries – most of which is met by their employer, the taxpayer.
This pensions apartheid is as offensive as the real thing, and will cause widespread misery once Personal Accounts hit pay packets. Thus the destruction of what used to be one of the best pensions systems in the world continues.
(Editing by Richard Hubbard)
((E-mail email@example.com)) You can read some of Neil Collins’ recent columns at: http://blogs.reuters.com/great-debate/author/neilcollins/