THERE HAS been considerable publicity in the media for the controversial plans to make changes to public sector pensions but at the same time many in the private sector are also facing a threat to their financial security in old age.
Oil giant Shell recently announced its intention to close its final salary pension scheme to new entrants, reported The Times of 6 January 2012. This means that now no FTSE 100 company offers such a scheme to new entrants. In Footsie’s farewell to the final salary pension scheme by Patrick Hosking the stark changes that have occurred in the private sector in recent times are laid out:
“In the 1990s, almost all large private employers offered a final-salary linked pension, which guaranteed a retirement income regardless of life expectancy or stock market performance.
“But rising longevity and falling investment returns have led most private sector employers to water down benefits”.
Other major companies mentioned in this article include Tesco, which has switched to a career average salary arrangement for calculating pensions and Barclays and AstraZenica which have introduced “so-called cash balance arrangements, in which the risks are shared between employer and employee”.
On 3 January 2012, the Association of Consulting Actuaries released the key findings of its 2011 Pensions trends survey.
Nine out of ten private sector defined benefit schemes are now closed to new entrants and four out of ten closed to future accrual (half of these closing in the last year alone).
Only just over a quarter of employers have budgeted for the cost of workplace pension auto-enrolment which begins in stages from October 2012.
In all three areas of investment, longevity and inflation risk, at least half of the employers responding to the survey say that employers should share or take on a majority of these pension risks.
(Solidarity writer’s comment: Although this point seems positive on the face of it, as it would not sound good for an employer to respond negatively to sharing or taking on pension risk, it can be perhaps reasonably assumed that the majority of those employers asked to participate in this survey, as opposed to those who chose to respond, were not enthusiastic about sharing such risks with their employees).
Overall, a fifth of employers are looking to decrease their pension spend, balanced by 14% aiming to increase spend. A third of larger employers say they are looking to decrease their spending on pensions.
Whereas, at present, over nine out of ten employers say their employees retire at age 65 or younger, in under a decade close to four out of ten employers expect the typical retirement age to be 67 or later. One in six employers expect typical retirement ages to move out to between age 68 to 70 by 2020.
While Solidarity understands that both public and private sector employers are enduring harsh economic times just now, the union calls for the retention of decent pensions for all workers. Many of the companies involved in changing their employees’ benefits are still making huge profits and thus could well afford to safeguard the funds to provide their employees with a decent income in their old age.