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Pensions Betrayal by Big Business Hundreds of thousands of workers are on the verge of loosing many of their pension benefits, before they are even retired. Cost-cutting big business is taking steps to save money for shareholders at the expense of their own employees. How? By taking the knife to the company pension scheme. For decades employees of some of Britain’s largest companies have paid in to their company’s occupational pension scheme. Methodically, systematically and with additional contributions from the company they work for. The goal, a final salary pension when they retire. A pension calculated by taking their final salary multiplied by a percentage relating to the number of years they have worked for the company. But for employees of a growing number of Britain’s biggest companies, their pension scheme is about to be changed. And not for the better. This isn’t the first major blow those with pension schemes have been dealt. In Labour’s inaugral Budget, one of Gordon Brown’s first steps was to slash the tax credit received on dividends paid on shares held within a pension scheme. This instantly removed £5 billion a year from Britain’s pension funds and placed it in the hands of the Treasury. The negative effects of the compounding of such a huge loss for those saving for their old age magnified with each passing year. Now many of those pension funds are about to be hit again &ldots; and for some on an even greater scale as Big Business switches from final salary schemes to "money purchase". With 8.5 million people in final salary schemes, that is a lot of people who could suddenly be expected to either pay more into their scheme or have a much reduced pension when they come to retire. Britain’s big employers on the other hand will end up with more money to pay their shareholders. Big business can get away with it because, unlike final salary schemes, money purchase schemes do not necessarily require a contribution from the employer and if they do it is either much smaller or discretionary. Another disadvantage of the money purchase scheme, as anyone with a personal pension will tell you, is that you have to use the fund accumulated to purchase an annuity. And during a period of a falling base rate, an annuity can seem like nothing more than an anorexic interest payment on money you spent a lifetime saving and now is no longer yours. This is something many now conclude as one insult too many, particularly when looked at through the eyes of the employee who sees themselves losing out so that their employer can massage the end of year figures. These changes could, in some cases, halve the amount paid out to employees when they retire, leaving many needing to find work or to go without as they deal with a massive drop in their standard of living. Companies including Thorn, Zeneca, Barclays Bank, Lloyds Bank, ICI and Legal & General have all declared their intention to stop their final salary schemes. Tesco, who continues to record ever higher profits, has told its 170,000 employees that they will have to make large increases in contributions as a result of it apparently finding something better than its own employees to spend its money on. British Telecom, who operate Britain’s largest final salary scheme, will be operating it no more as they introduce what Philip Hampton, BTs new finance director, calls their new "flexible plan" and apparently saving themselves up to £167 million a year in the process. But for those in the know these announcements are not a shock. For years companies have been switching their occupational pension schemes from final salary to money purchase. Lower stock market returns have magnified Gordon Brown’s earlier stealth tax and forced many companies to top up schemes to cover any shortfall. The introduction of the Stakeholder Pension has been heralded by many salesmen as the death knell for final salary schemes. How many final salary schemes will still be in existence twelve months from now, let alone when those currently using them to fund their pensions are due to retire is something that no one can answer. But the trickle of a few years ago is now a torrent. Each time a company decides to short change its employees by dumping past promises and switching to a money purchase scheme, those employees will be faced with a new and uncertain future. One in which their finances will be less secure and life that much harder. If you have an occupational pension scheme it is time you asked your employers just how much certainty they are contributing to your future. Because, if they are not contributing, you will have to cut back on your spending today. The alternative is a future in which you don’t get the choice.     Published Monday May 28th 2001

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