Will Pensions Ever Be The Same?
by Ritchie Mehta (28 August 2009)
With many companies closing their final salary pension schemes to new employee's, research has suggested that both public and private sector workers' pensions are being squeezed.
Pensions play an extremely important part in the overall remuneration of employees, especially since the government’s pension provision is likely to dwindle as time moves on. However, it seems that employees in both the public and private sector are getting squeezed from both ends of the scale as we see organisations too, pulling back on pension provision.
In the recent past we have seen a host of companies putting restrictions on their final salary pensions, with many taking the drastic step to close final salary pension schemes to new employees altogether. The latest news, reported by The Times, suggests that many public sector workers will have, in the best case, to heavily contribute to maintain their ‘gold pension’ or have them slashed. According to the report, the ‘final-salary’ schemes could be replaced by a more conservative ‘career-averaging scheme’. This scheme would entail an individual getting a certain proportion of their total average earnings as a pension.
If this plan goes ahead it will certainly amount to less than what they would be entitled to under the final-salary pension scheme. For example, The Times illustration suggests that a senior manager in a local authority with a salary of £100,000 would earn £66,000 under the final salary scheme, while only earn around £23,125 under an average earning scheme. The rationale for this type of new approach being considered is due to a huge black hole that has arisen in pension provisions, which is estimated to be in the region of £60 billion in the public sector.
This news comes at a time when private sector organisations such as RBS are evaluating their pension provisions for their final-salary scheme. According to the latest reports, RBS plans to cap its final salary pension scheme, which is likely to impact around 60,000 thousand workers. They suggest that they will be capping the amount of pensionable salary increases by either 2% annually or inflation – whichever is lower. In their statement they have said that they also proposed reducing the bulk payment, which some employees may be due on early retirement. These changes to the employees full salary pension provision are a part of a long series of changes that have taken place since the bank decided to close the scheme for new members in 2006.
Simply put – the deals just are not as sweet as they use to be.