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Anyone who thinks of the British as a calm, phlegmatic, stoic type of people has only got to utter the words ‘I think Sir Fred Goodwin’s pension is entirely reasonable’ to find that this might not wholly be the case!

It is, perhaps, unfair to single one man out as the embodiment of the huge gaps between the haves and have nots but it is clear that Goodwin’s £700,000 annual pension is certainly many, many times the total pensions pot for Mr and Mrs Average. Even before the disintegration of monolithic dynasties like Lehman Bros and Bear Stearns in the USA and the collapse of HBOS and RBS over here causing the financial landscape to cave in (for how long, no one knows), it was clear that people were going to suffer in retirement due to inadequate pension provision.

In this country, following the publication of Lord Turner’s Pensions Commission report in 2005, the cornerstone of the Government’s thinking on pushing people towards organising their own retirement income has been the concept of auto-enrolment, i.e. you’re automatically included in your company scheme (or the new Personal Accounts) and you have to physically opt out. In this way, the Government hopes that inertia will be the biggest determinant of how it works and that people will stay in because it requires more effort to take yourself out (and to keep taking yourself out when you get re-enrolled the following year).

All of this must have sounded quite promising when auto enrolment/Personal Accounts was first mooted. It is, however, a significantly different economic landscape now for UK plc and its workers. Job security and mortgage repayments are at the top of most people’s worry lists, closely followed by clearing credit card debts, travel for work, student loans and the like. What’s left over will need to cover life’s little luxuries – like food and heating!

Where will pensions fit into all this?

Ironically, pensions is likely to figure higher in the public consciousness during these turbulent times than at any time in recent memory. Even though companies are looking to wind-up their final salary pension schemes as soon as possible they cannot just abrogate their responsibilities (though doubtless many would like to). These schemes have a shelf life of potentially 30 to 40 years and will either need to be managed for that time or – more likely – managed until a buy-out provider (who will take the scheme from the company and manage its deficit) can be found. Whichever way it goes, expert advice will be at a premium as companies look to mitigate their pensions risk.

There is a lot of talk about finding alternatives to final salary pensions without switching to the opposite end of the spectrum, i.e. money purchase, where all the investment risk passes from employer to employee. The most likely solution is that the employer and trustee boards (for the traditional occupational final salary schemes) will look to risk sharing solutions where each party tries to accommodate the needs of the other – though this rather paternalistic compromise is not necessarily popular for UK companies with overseas owners. That is where the beefed up Pensions Regulator can start flexing its muscles and look to ensure that these companies do not forget their long term obligations.

All of this means that there will be plenty of work for pensions managers, employee benefit consultants, lawyers, actuaries, third party administrators and others within the pensions industry for decades to come. Expert advice – and those giving the advice – will be at a premium in all professions in these troubled times. Pensions will be no exception.

About the Author

  • Name: Vince Linnane

Vince Linnane is Chief Executive of the Pensions Management Institute (PMI). Prior to taking up the post in July 2006 he was Head of Product Management at PMI, where he has worked for more than 20 years.

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