Pensions: A Disaster Waiting to Happen; (1)Government Tax Changes Threaten the Viability of Pension Funds. It Is Today's Young Who Will Have to Pay(2)

By Hilton, Anthony | The Evening Standard (London, England), February 20, 2002 | Go to article overview

Pensions: A Disaster Waiting to Happen; (1)Government Tax Changes Threaten the Viability of Pension Funds. It Is Today's Young Who Will Have to Pay(2)


Hilton, Anthony, The Evening Standard (London, England)


Byline: ANTHONY HILTON

WHEN Labour came to power five years ago it promised to think the unthinkable on pensions. Poverty in old age would become a thing of the past.

Chancellor Gordon Brown promised new tax incentives and savings schemes designed so that even the poorest in the community would have a chance to set money aside for a decent old age. A new Governmentbacked scheme - Social Security Minister Alistair Darling's stakeholder pension would provide a low-cost alternative to the expensive packages offered by City investment houses.

Well, the Government was right on one thing - the unthinkable is now happening.

But it has been disastrously wrong on everything else. Far from creating a pensions wonderland, it is presiding over a pensions quicksand.

No one is interested in stakeholder pensions, but worse, far worse, the foundations of the good stuff Labour inherited are also beginning to crumble.

When it came to power, British pensions were seen as enviably sound, but just not widely enough available. Not any more. The sum total of Labour's tinkering is to make the problem more acute by the day. People who thought they had been prudent and made provision now need to think again. Not since Victorian times has there been such a threat of widespread destitution for our children when they reach retirement.

A disaster of epic proportions is in the making because companies are pulling the plug on final-salary pension schemes, claiming they can no longer afford them. These plans are the bedrock of the occupational pension system, promising employees a proportion - normally a half of their final salary at retirement.

But in the past few years, the costs of running such schemes have exploded skywards, causing major companies like Marks and Spencer, BT, Whitbread, ICI, Lloyds TSB, Sainsbury and last week Abbey National, with a record of paternalistic philanthropy towards their employees, to pull down the shutters. ACROSS the country, in just seven years, according to Scottish Equitable's Stewart Ritchie, the number of companies with finalsalary schemes has plunged from 38,000 to just 10,000, leaving employees to take their chances with a direct-contribution pension. As Equitable Life amply demonstrated, there is absolutely no certainty of how much it will be worth - if, indeed, it will be worth anything - on retirement.

It's not just the volatile stock market that poses a threat. Most companies pay much less under direct contribution than they pay into final-salary schemes, so the employee has a lot less money working for him.

But because people live longer, far from saving less, they should be saving more. Actuaries say 30-year-olds should save about three times as much as their parents had to for the same pension. If they fall behind now, the chances are they will never catch up.

When they turn 65, the money simply will not be there.

So why, after nearly 50 years of boasting about them and encouraging employees to join, have companies suddenly decided they can no longer afford such pension schemes? …

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