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Labour Government Kills off Final Salary Pensions

With the tax on pensions introduced early on by the government pension funds were struggling. There always have been tensions between final salary pension schemes and defined contribution schemes. Industry and Commerce find it difficult to cope with the uncertainty of the defined contribution schemes. When inflation was higher it was easy for them to cope as the effect of inflation whittled away the benefits (and costs) of the pension schemes.

Then Labour introduce a new levy on final salary schemes. It seems a clever wheeze at the time to underwrite some final salary schemes through other ones. The end result, however, is to put more pressure on companies to close them down.

It is a bit like Labour's tax on fuel. Inevitably this has some effect in putting up costs of fuel. Gordon Brown's removal of ACT at the time seemed to have no immediate effect. The effects was entirely down the line.

The story is in the press today that soon in the private sector the number of people with defined contribution schemes will exceed those of defined benefits.

Comments

PoliticalHack said…
Blame Labour - don't think about those greedy company bosses who used the Tory legislation to take long holidays from paying company contributions into pension funds when the market was riding high. Now the growth is that much lower, they prefer to make the employees suffer. That's the real problem behind all of this, not the ACT changes or the increased PPF levy. Note that the directors of these companies typically retain final-salary schemes for their own pay grades, showing scant regard for the future of their scheme.

And if it hadn't been for the Pensions Protection Fund, those former employees at Rover would have had nothing to show for their long service. Of course, your former friends who ran the company into the ground would still walk away with their millions, so they'd be all right.

But then, if the Liberal Democrats had been in power, Rover would have staggered on for a whole extra month before collapsing without any pensions protection for the workforce.
john said…
The point about pensions protection is that it is insured against pensions generally rather than by the government. Redundancy payments are insured by the government as is payments in lieu of notice.

The pressure on directors to handle the uncertainty of pensions comes from shareholders who are substantially pension funds.

I accept the point that directors should not escape any changes to final salary schemes. There is an argument for a conflict of interest there which arguably could have a statutory resolution.
Bob Piper said…
Politicalhack is absolutely correct about the way employers took pension holidays during the good years and now want to squeeze the employees during the bad. What John Hemming doesn't explain is that the Lib Dems want to enable these corrupt employers to be able to force their employees into their pathetic schemes even though the employees may be able to invest their own money far more wisely themselves. So you would not only lose the final salary schemes you would be 'taxed' by your employer to enable them to invest your money for you.
john said…
That is not what I understand party policy to be. My personal view is that all people should have the option of a transferrable fund.
Bob Piper said…
So, which part of the Liberal Democrat Policy Paper on dignity and security in retirement, do you not understand? That quite clearly states that the Liberal Democrats will "allow companies to make membership of their schemes a condition of employment." As I read that, that means employers would be allowed to force employees to invest their money in the company scheme. If it has got another meaning, please tell us all.
john said…
Policy Papers are ideas not necessarily policy. I have seen a number of proposals float around.

But I don't think compulsory contributions are part of the situation.

Much that people would not get employer's contributions if they don't contribute themselves.

In any event the whole thing assumes that money is the key thing rather than resources.
Bob Piper said…
Ah, I see. How foolish of me to think that the Policies contained in the Policy Papers on the Lib Dem website:
http://www.libdems.org.uk/party/policy/paperlist.html
meant they were actually Lib Dem policies. instead of just a vague wish list. no wonder people get confused and think that the Lib dems are just trying to be everything to everybody.

Or could it just be that John hasn't troubled to read them?
john said…
We don't follow the "tony says" approach to policy. That means that proposed policy papers are issued which are not necessarily adopted by conference.
Bob Piper said…
So why is it being shown as a 'policy' on the Lib Dem website. Is this just an attempt to con bussiness people into thinking the Liberals would give them this power. I still suspect the real answer is John did not know about this policy. Easy to spout off rhetoric about the Government... much more tricky when you have to defend your own policies.

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