Bleak future due to pensions disaster
by DARREN BEHAR, Daily Mail
The full scale of the crisis hitting company pensions was revealed yesterday in two shock reports.
Research shows that two-fifths of final salary schemes have been closed to new staff in the past year.
And 7 per cent of firms shut their schemes to existing workers, according to the National Association of Pension Funds.
In a separate survey, JPMorgan Fleming revealed that half of Britain’s biggest schemes have either been closed entirely or made off-limits to starters. A year ago the figure was one-third.
The investment firm’s study of the 350 biggest pension schemes covering 4.6million members also suggests two-thirds of final salary pensions in Britain will be shut within five years.
The closures mean millions more workers may have to retire later or live off less money in their old age.
Firms have shaken up their pension policies in the face of falling share prices and employees living longer.
Ronald Bowie, head of the Institute of Actuaries pensions board, warned that pension funds were £250 billion short of the sum they needed to match potential commitments.
British Telecom yesterday revealed it is to pump an extra £32 million a year into its pension scheme to try to trim a £6.3billion deficit. And Royal Mail – with a £4.6 billion shortfall – will contribute £100 million more a year.
The deficits will shrink, however, if stock markets rise.
Many firms are replacing final salary schemes – usually worth two-thirds of a worker’s retirement wage – with defined contributions.
But staff often do not realise they need to put in more because employer contributions are usually lower in defined schemes.
Final salary models cost firms more and managers find it difficult to predict their long-term value.
Critics say the plight of pension funds has been worsened by Chancellor Gordon Brown’s £5 billion annual tax on their profits.
The latest figures add to the pressure on the Government to take action.
Tory pensions spokesman David Willetts will today unveil six measures to tackle the crisis.
One idea is to scrap the Government’s proposed £1.4 million lifetime limit on pension contributions. Another is to force directors to offer staff the same terms they enjoy themselves.
“I am very frustrated that ministers have sat on their hands and done nothing as this crisis has got worse,” Mr Willetts said.
“Our proposal will once more create one nation in pensions. Nobody held back. Nobody left behind.”
Tony Blair has also come under fire for not appointing a new pensions minister after Ian McCartney took the Labour Party chairmanship. Critics say the post is being left vacant when key decisions need to be made on the pensions green paper published last December.
Nine out of ten experts surveyed by JPMorgan Fleming said the consultation paper was inadequate.
Karen Roberton, the firm’s relationship manager, said: “Government moves to improve take-up of pension provision do not seem to be making a major impact on UK pension schemes and instead are being met with widescale scepticism in the pensions industry.”
Derek Simpson, of the trade union Amicus, said the pension crisis would mean “poverty pay for millions of people in retirement”.