Pensions under threat

The so called Deregulatory Review – an innocent enough sounding title for something that could fundamentally affect a massive number of older people – has led to the publication of a Report which, thanks to some sensible thinking, determined that people’s accrued pension benefits should not be exposed to potential cutbacks.

The logic behind this is impeccable. Pensions are deferred pay; if at the end of the year, an employer asked each employee to give back 5% of their earnings, because it wanted to ensure that it could continue to make a profit next year, there would be uproar. So the idea that it should be possible for employers or pension scheme trustees to unilaterally reduce pension benefits that had already been earned, makes no sense at all.

The problem is that defined benefit pension schemes are in decline and many are under-funded, largely because of Prime Minister Gordon Brown’s move back in 1997 (when he was Chancellor) to remove the ability of pension schemes to reclaim the tax deducted at source by UK companies on the dividends they pay out. This decision – against which he was very clearly warned by many experts at the time, it has recently emerged – has cost UK pension funds £5 billion each year for a decade. That is £50,000,000,000 so far, even without allowing for investment growth on the money. Assuming a working population of 20 million, the real impact could be anything up to £5,000 a head, or more.

Government has therefore been facing a dramatic decline (of its own making) in the number of defined benefit pension schemes and now has to find ways of ensuring that individuals and their employers should start rebuilding their pension provision. One option is clearly for employers to be given the freedom to reduce current commitments in order to provide for the future and this is likely to have considerable appeal to them, because pensioners and deferred pensioners (those who have accrued pension rights but no longer work for them) cannot strike in support of their rights.

For this reason, ministers may decide to ignore the recommendation to leave the defenceless alone and go for the easy option of making current pensioners pay for the benefits of current workers. If you feel that this is not a good idea, there is a petition on the number 10 website that you can sign up to http://petitions.pm.gov.uk/Save-our-pension asking the Prime Minister to ensure that ministers do not, under any circumstances, allow the interests of those still at work to damage the retirement security of those who are already retired or who have accrued deferred benefits.

And at the same time, it might be a good idea to review your own pension planning.

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