Government proposes to slash final salary benefits – Could this be the final nail in the coffin?
The UK Government has announced controversial plans to UK final s alary pensions which could drastically reduce the benefits which members are currently entitled to. Under the proposals, which are subject to a six week consultation, the Department for Work and Pensions is planning on removing pension scheme obligations to provide Index linked increases to pensions, potentially increase a members retirement age and remove the right of Widows to receive a pension upon the death of their spouse.
These new measures, which could come into force in April, will see the real “value” of an individual’s pension slashed overnight and put even more pressure on individuals to ensure that they have their own arrangements in place to ensure that they have sufficient pensions in place for not only when they retire but also for their surviving spouse once they pass away. Should these proposals come in to force many members of these schemes will feel that they have been lied to over the years with promises of “guaranteed” pensions that will take care of them and their loved ones in retirement. It many instances these promises made by companies helped them to retain staff from leaving companies and giving up their “gold-plated” pensions.
So why is the Government proposing these changes?
Of course the Government, in times of economical hardship, wants to protect British businesses who are bulking under the weight of their huge pension obligations but is there more to these changes? The Government is very clever at masking the fact that their own pension obligations, in the form of civil service pensions, dwarf those of the private sector. The NHS alone has a growing future pensions liability of over £250 billion which cannot be funded by the tax payer alone! It is certainly in the Governments own interest to reduce benefits payable and whilst doing so drastically reduce the huge liabilities that will become payable over the next few years. The sheer scale of civil service pension liabilities could cripple the UK in years to come should changes not be made.
Steve Webb, The Pensions Minister, was quoted as saying “Traditional final salary defined benefit schemes which give the consumer certainty [in retirement] are in terminal decline”
Whilst I can’t argue that final salary pensions are in decline, and I believe they could well be extinct within 10 years, I also think this bid to save pensions could ultimately be the final nail in the coffin for the once much loved final salary pension.
Many individuals still wrongly believe that their pensions are “guaranteed” and “bullet proof” but as we can see here this is clearly not the case and individuals should review their pensions at least annually to ensure they understand the benefits they will receive.
Nigel Green deVere Group
Blog written on 8th November