I read an article last week about ‘Final Salary Pension’ schemes.
A Final Salary Pension is typically a company pension scheme where workers put money into a pot that contains all the money from all the company employees. The company also contributes to the pot which is then invested, and hopefully grows over the years. At the end of the person’s working career, he or she is not given the money to invest in an annuity scheme, but instead the organisation running the pension pot, directly pays the retired employee their pension. Unlike annuity pensions, these company schemes are not designed to make a profit, so the employee gets a much better pension.
Sadly with the recent downturn in the economy, plus the fact that people are living longer after retiring, investments by the pension organisations were not growing sufficiently to enable everyone to get their pensions, and the employer had to make bigger and bigger contributions to keep the pension pot solvent.
Some of the schemes were closed to new employees and they had to go down the traditional saving scheme for an eventual annuity. Some schemes failed and the employees had to rely on the state to make up their pension shortfall.
My own company (BT) was one that closed their Final Salary Scheme for new employees but also went out of their way to prop up the pension pot and contributed £millions to ensure everyone got the pension they were promised.
The really serious problem is that many government bodies still offer these final salary pensions to their employees. The pension pots required to service the pensions is astronomical and the state has to inject unmanageable sums of money into the system.
For many years ways of overcoming the problem have been discussed but the workers’ rights have always been protected by the law and it has been almost impossible to reduce the financial burden of the various companies and of course the government.
It now seems the government is supporting, or possibly implementing, changes in the law that will allow companies the change the rules of the pension schemes. This will eventually mean that workers will get less, or not get the annual rises in the pensions as they might have hoped for. Other options considered included not having to pay a percentage of the pension to a spouse when the retiree dies.
For those of us already drawing our pensions these changes will probably not affect us or our spouses. But thousands of workers with perhaps just a few years left to work may suddenly find themselves having to work longer for that promised pension, or survive with a smaller one.
This is bad, but the article had a final twist that made the news even harder to swallow.
Members of parliament are entitled to these final salary style pensions. But it seems the planned changes to the law will not affect MPs’ pensions. They will continue to receive the full amounts; including the generous inflation proof rises each year.
Just as with the wonderful pay rise a couple of years ago that was far in excess of other Public Service workers, the MPs are now ensuring that they are not treated in the same way. They already have a life with fantastic job satisfaction, they are paid a wonderful salary, and they get expenses to ensure they are never out of pocket. They vote to ensure Public Service workers don’t get a pay rise and yet have their own pay rise that is more than many people can only dream of. Now they are considering new laws that will affect thousands of workers who have been in exhausting, boring jobs with little satisfaction for a lifetime when they retire. But those laws will not include the people making these decisions.
Shame on you!!