UK News

from The Great Debate UK:

The Pensions battleground: stalemate or truce?

-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.

This stalemate, if it continues, will benefit nobody.

I think people want:

•    To have a retirement income that is, at least, similar to their peers •    One that is reasonably predictable, with regular updates as it builds up •    A higher flat pension (with discretionary indexation when markets permit), rather than a low but fully-indexed pension •    Clear communication of what is guaranteed and what is not

Sir Fred Goodwin’s pension climbdown

Former Royal Bank of Scotland chief Sir Fred Goodwin has agreed to more than halve his widely criticised 703,000-pound pension award.

He will now only receive an annual payout of 342,000 pounds.

Chairman Philip Hampton said: “I am pleased that common sense has now prevailed and I hope that most reasonable people will welcome that.”

Do you?

Could Goodwin learn from Profumo?

Treasury Minister Paul Myners was fulminating against Sir Fred Goodwin’s 700,000-pound pension in parliament this week when he made an intriguing suggestion.

“I still hope there’s the opportunity for Sir Fred to do the right thing and either return some of his pension or make a very substantial and long-term commitment to charity both of money and of his undoubted energy and resources,” he told a committee.

The former head of RBS has already said he has no plans to hand back the cash, in fact he has already taken an advance on it, but what about the other part: channeling his undoubted energy and resources into charity?

Readers may well remember the shining example of a man who did just that over 40 years ago.

John Profumo was forced to resign as Secretary of State for War in the Christine Keeler scandal of 1963 when it became clear he had been involved with showgirl Keeler — who was reputedly also the mistress of a Soviet spy in London – and when he committed the ultimate sin of lying about it in parliament.

No desperate hanging on for him or clutches of PR men hired to limit the damage. Out he went. He devoted the rest of his life to good works and charity and died three years ago.

If saying “sorry” is not enough, perhaps John Profumo’s long atonement could serve as a model of contrition for today’s fat cats and politicians when the time comes to repent.