- guardian.co.uk, Sunday January 5 2003 00.55 GMT
- The Observer, Sunday January 5 2003
Pensions will be slashed by a third in schemes being introduced by many employers to replace traditional final salary schemes, claims a report published tomorrow.
Bryn Davies, an actuary who advises trade unions, predicts a leaner future for workers offered new money purchase pensions instead of the traditional type. The new type relies on returns from stocks and annuities. There is no link between pay at retirement and length of service as in final salary pensions.
Davies says: 'Many employers remain committed to final pay schemes. But if they switch to a money purchase basis most take the opportunity to cut back on the value of their employees' pension benefits. Their workers not only face a higher risk from their new scheme, but are also likely to have a much lower income in old age.'
Many companies making the switch allow existing employees to stay in final salary schemes but close them to new staff. Several schemes Davies ranks among the worst are run beside traditional ones. The newer ones are generally 'starter' pensions for people who may join or later become eligible for the employer's main scheme.
Davies's report ranks the overall quality and value of benefits from more than 250 of the largest schemes. The ideal scheme is one with the potential to pay pensions of up to two thirds of workers' final salaries. All of the schemes in the bottom 10 are money purchase plans. The worst performer, says Davies, is retailer Kingfisher, parent to Woolworths. The Kingfisher Trust scheme has benefits equivalent to only 25 per cent of the ideal schemes. However, Kingfisher also runs a traditional scheme offering higher benefits.
Other schemes in the bottom 10 include the money purchase section of the Asda pension scheme, the Boots Stakeholder scheme and a scheme operated by Johnson & Johnson. The best company pension scheme is BP's 5:45 plan which produces pensions 24 per cent better than those of Davies's target scheme. BP is followed by BAT, and the MPs' Parliamentary Contributory fund.
