Some employees could end up with half the retirement income they expect, warned William M Mercer, an employee benefits consultancy, on August 16. Falling interest rates, longer lives, and low or negative returns on pension fund assets are behind the problem – but so too is the government’s policy of removing tax credits for company pension schemes back in 1997, making it much more expensive for companies to provide for their workers’ futures.
The report suggests that in 1991 a 30-year-old who joined a money purchase scheme and put 10% of their salary into it, could expect a pension pay-out of 55% of their final pay at 65; whereas, a 30-year old joining a scheme this year can expect a pension of just 24% of their final pay when they retire at 65.
The problem may apply to millions of workers, particularly those investing in money purchase pension schemes, where the worker’s contribution is defined, but not the final pay-out. Many companies are now switching to money purchase pensions because it is becoming much more expensive to run ‘defined benefit’ or ‘final salary’ schemes, which guarantee a certain level of pay out at retirement. In essence, the risk of meeting a target pay-out from a pension is being transferred from employer to employees.
Meanwhile, the gloom is compounded by the latest annual survey of company accounts by actuaries, Bacon & Woodrow, which suggests that 17 of the UK’s 100 biggest pension funds are under-funded by millions of pounds – up from seven last year – because of falling investment returns, low inflation and low interest rates. Contact Jonathan Gainsford, WM Mercer, on 020 7963 3324 (http://www.wmmercer.com); Brian Wilson, Bacon Woodrow, on 01372 733986 (http://www.bacon-woodrow.com)
Stakeholder pensions.
Meanwhile, a report from the Association of British Insurers on September 9 shows that companies are being slow to sign up to providing stakeholder pensions, as part of the government’s policy of getting lower paid workers to take more responsibility for their pension provision. The ABI report shows that only 125,000 of the estimated 300,000-400,000 companies who are required to designate a stakeholder pension scheme had signed up by the end of July. ABI member companies are among the main providers of stakeholder pensions. Contact Suzanne Moore, ABI, on 020 7216 7410 (http://www.abi.org.uk)
Pensions focus hots up.
September 26 saw the launch of a comprehensive review of private pensions legislation, to simplify rules and reduce compliance costs. Leading the review will be Alan Pickering, a past chairman of the National Association of Pension Funds. The move coincides with the launch of an advertising campaign by the government to increase public awareness of pensions and the need to plan for an individual’s retirement. The government has also issued a revised set of principles of investment for pension funds – there are principles for both defined benefit schemes and defined contribution schemes. Pension funds will be encouraged to adopt the principles as best practice, and explain where an alternative approach has been taken. Contact the Department for Work and Pensions on 020 7238 0866 (http://www.pensionguide.gov.uk)
AstraZeneca’s Heart Day.
AstraZeneca’s 6,000 UK staff were offered blood pressure and cholesterol testing, healthy heart information and special food in staff cafeterias on September 28, as part of the company’s international sponsorship for World Heart Day. The World Heart Federation is the NGO organiser, with co-sponsorship from WHO and UNESCO. Contact Julie Walker, AstraZenca, on 01625 510 866 (http://www.astrazeneca.co.uk)
Privacy fears.
The Institute of Management warned that managers could be invading their staff’s privacy under UK human rights legislation, if they ring them at home after hours or vet their emails or phone calls. The warning will fuel industry nervousness about employee privacy rights, already heightened after the publication of new guidelines for government departments and agencies by the Information Commission on August 11. The fear for business is that the new guidelines suggest ministerial support for the Commission, which is working on a code restricting companies’ rights to monitor staff communications. The new guidelines suggest that employees should be warned of the likelihood of their emails being opened, (if this is the case), and that other means to control employee internet access – such as filters – be used in place of monitoring. Contact the e-Envoy Office on 020 7270 0317 (http://www.e-envoy.gov.uk)
Government pushes flexible working…
UK employers are the target of two new reports on the benefits of flexible working from the Department of Trade and Industry. The reports form part of the Work-Life Balance series and cover innovative examples at both corporate and individual levels on achieving moderation between home and the office. Contact Fiona Campbell, DTI, on 020 7839 4321 (http://www.dti.gov.uk/work-lifebalance)
…as does TUC
Several FTSE 100 companies – including BP, Sainsbury’s, BT and Lloyds TSB, are offering flexible working regimes, according to a guide on flexible working from the TUC, which finds that UK employees work the longest hours in Europe. Changing Times was published on August 21. In conjunction with the guide, the Industrial Society is providing a video training pack, Get the balance right, to suggest practical steps in establishing work-life balance policies. Contact Stephanie Power, TUC, on 020 7467 1248 (http://www.tuc.org.uk); Memuna Forna, Industrial Society, on 020 7479 2111 (http://www.indsoc.co.uk)
news in brief
• A special supplement in the weekly Personnel Today, published September 4, looked at how personnel professionals can help companies to promote ethical behaviour. Contact Stephen Overell, Personnel Today, on 020 8652 3500 (http://www.personneltoday.com)
• Workers will have a right to paid annual leave from their first day of employment, following changes to the working time regulations. They have a corresponding right to compensation for untaken leave when they leave employment. Contact DTI on 020 7215 5000 (http://www.dti.gov.uk)
Comment
Pensions? An issue of corporate social responsibility? Well, yes actually (and we don’t mean Equitable Life, mis-selling or the finer points of pension fund accounting). Here’s the story. The hard economics of CSR boil down to finding the right balance between different stakeholder groups in a given financial year. How much to pay in dividends to investors against spending on employees for wages, benefits and working conditions or on high levels of environmental protection or on generous community contributions or on supply contracts with decent labour standards.
Why do we employees work? Partly to meet our current living costs and those of our families, but also to save up for when sickness and old age mean we can no longer earn an income. In the post WW2 era of jobs for life and the state safety net, retirement was funded either by government benefits or through company pensions, in which the employer guaranteed a certain percentage of final salary. Today, with more flexible employment patterns, greater longevity and unwillingness to pay high taxes, the trend is away from so-called ‘defined benefits’ to ‘defined contributions’: increasingly both government and employers are saying to employees “we’ll pay just X; for the rest, over to you”.
Where does that leave the socially responsible company? Firstly, it means making sure employees actually know what is going on, with sufficient information and understanding to make the right personal decisions. Second, it means paying adequately for both current and future needs. Third, it means including pay and pensions in external reports to society, so customers, potential new employees and others considering doing business know what’s going on.
This also has implications for socially responsible investment. With more individuals investing and monitoring their own retirement funds, will it mean greater demand for ‘ethical’ funds? At the margin, probably. But with such a personally vital issue as quality of life in old age at stake, more likely it will reinforce the demand for high absolute returns, whatever the social implications.
COMMENT:
Pensions? An issue of corporate social responsibility? Well, yes actually (and we don’t mean Equitable Life, mis-selling or the finer points of pension fund accounting). Here’s the story. The hard economics of CSR boil down to finding the right balance between different stakeholder groups in a given financial year. How much to pay in dividends to investors against spending on employees for wages, benefits and working conditions or on high levels of environmental protection or on generous community contributions or on supply contracts with decent labour standards.
Why do we employees work? Partly to meet our current living costs and those of our families, but also to save up for when sickness and old age mean we can no longer earn an income. In the post WW2 era of jobs for life and the state safety net, retirement was funded either by government benefits or through company pensions, in which the employer guaranteed a certain percentage of final salary. Today, with more flexible employment patterns, greater longevity and unwillingness to pay high taxes, the trend is away from so-called ‘defined benefits’ to ‘defined contributions’: increasingly both government and employers are saying to employees “we’ll pay just X; for the rest, over to you”.
Where does that leave the socially responsible company? Firstly, it means making sure employees actually know what is going on, with sufficient information and understanding to make the right personal decisions. Second, it means paying adequately for both current and future needs. Third, it means including pay and pensions in external reports to society, so customers, potential new employees and others considering doing business know what’s going on.
This also has implications for socially responsible investment. With more individuals investing and monitoring their own retirement funds, will it mean greater demand for ‘ethical’ funds? At the margin, probably. But with such a personally vital issue as quality of life in old age at stake, more likely it will reinforce the demand for high absolute returns, whatever the social implications.
COMMENTS