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Bosses' pensions robbery
Pensions are back in the headlines with the news that FTSE 350 companies' pension deficits are equivalent to 70% of their annual profits. For decades, bosses have been closing workers' 'final salary' pension schemes - also called 'defined benefit' (DB) - both to new entrants and existing members.
DB schemes are based on a percentage of final salary multiplied by the number of years in the scheme. Sometimes they are replaced with a far less generous 'defined contribution' schemes or 'career average' pensions. In the private sector the number of workers in final salary schemes fell to 600,000 in 2013, from 1.4 million in 2006.
The latest company to scrap its final salary pensions is BT. BT had already closed its DB scheme to new entrants back in 2001.
The Communications Workers Union (CWU) has threatened strike action unless the company reverses course. Recently BMW car workers and Atomic Weapons Establishment workers went on strike to defend their pensions.
Earlier this year Royal Mail said it would shut its DB scheme in March 2018. As a result of closure the CWU said a 50-year-old postie earning £25,000 a year and retiring at 65 would lose £4,392 a year, or more than £100,000 over the course of their retirement.
Companies axing their DB schemes claim that most pension pots - 74% - are in deficit, and the deficit is growing, making them unsustainable. Although top directors continue to have their final salary schemes generously topped up - see TUC's annual 'PensionsWatch' report.
However the Pensions Protection Fund, established by the government, flatly contradicts this claim, saying most of the funds currently in deficit will return to health in 15 years' time. Multinational financial services firm PwC points out the recent rise in equity markets has shaved £20 billion off the overall deficit.
Moreover the government's recently published green (consultation) paper said that DB schemes are not unaffordable. It stated that FTSE 350 companies on average paid out five times more in shareholders' dividends then they put towards their pension pot deficits.
The most notorious example of this practice was of course BHS. Its then owner Sir Philip Green looted hundreds of millions from the company in dividends resulting in the pension fund going from surplus to a £571 million deficit. Infamously, Green was pictured lounging on his £100 million superyacht in the Mediterranean while BHS workers were thrown on the dole.
In The Socialist 6 September 2017:
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