Move Your Pension

Wedgwood Museum closure condemned by Unesco

Pensions — Mon, 06 Feb 2012 00:05:58 +0000

Museum listed as one of world's top 20 cultural assets due to be sold off to pay £134m pension deficit after high court ruling

The head of a Unesco committee that shortlisted a British museum as one of the world's top 20 cultural assets has condemned a high court judgment that is forcing it to close.

The Wedgwood Museum in Stoke-on-Trent is to be broken up and sold to pay off a £134m pension deficit, following a high court judgment in December.

As well as thousands of ceramics produced by Josiah Wedgwood, one of the world's greatest pottery manufacturers, the museum, which opened in 2008, boasts an archive of more than 100,000 documents and manuscripts, and masterpieces by Stubbs, Romney and Reynolds. Such is the collection's historic significance that questions will be asked in parliament this month.

David Dawson, who was responsible for listing the museum on Unesco's Memory of the World Register, described the collection as "one of the most complete ceramic manufacturing archives in the world".

"The nation cannot afford the loss of this piece of its heritage," he said. "[The Wedgwood collection] was selected as one of just 20 items on the register, along with objects such as the Bill of Rights and a copy of King Charles I's death warrant."

The high court ruled that the collection was an asset of Waterford Wedgwood Potteries, which went bust in 2009, and could therefore be sold to pay off their creditors, the largest of which is the Pension Protection Fund.

The ruling was an unintended consequence of legislation to protect employee pensions after the Robert Maxwell scandal of the 1990s.The museum had not been linked to the company for almost half a century but has been penalised because five of its employees were part of the Pottery Group Pension Plan's member scheme.

An early day motion tabled by Tristram Hunt, the historian and MP for Stoke-on-Trent Central, expresses grave concern. It condemns the legislation as in need of urgent amendment and urges the government to save the collection. The Tory peer Lord Flight has also tabled an question in the Lords for 14 February.

The museum was founded by a family known for its altruism. Simon Wedgwood, one of Josiah's descendants, told the Guardian the museum held unequalled correspondence from Industrial Revolution figures over 250 years.

"The loss to the nation and the world would be incalculable," said Wedgwood. "It is tragic that recent legislation can mean that the assets of a bona fide museum can effectively be seized by the Pension Protection Fund because of such a tenuous link through a handful of employees."

Martin Levy, the London dealer and former member of the Reviewing Committee on the Export of Works of Art, said that the collection's sale would plug only a fraction of the £134m black hole: "A small gain for the pensioners will be a long-term loss for the country – no more than a pyrrhic victory."

Dalya Alberge

Millions face poor retirement ‘unless annuity system reformed’

Pensions — Sat, 04 Feb 2012 00:01:01 +0000

National Association of Pension Funds issues warning over government scheme that swaps pension pot for annuity

Millions of workers who will be automatically enrolled into a government-sponsored pension scheme this year will be left with a "woeful" retirement income, unless there is urgent reform to the system for buying annuities, the National Association of Pension Funds warned today.

Between five and eight million workers who currently don't have a pension scheme will have to pay in a minimum 2% of their salary into a private pension from October 2012, rising to 8% by 2017, including employer contributions.

Under current rules, when they retire they will have to use the money to buy an annuity from an insurance company – this is a contract that guarantees to pay an income for the rest of the buyer's life.

But the NAPF says many workers will accumulate small pension pots that will be swapped for sub-standard annuities when they take retirement.

NAPF chief executive Joanne Segars said: "There are some acute problems in the current operation of the annuities market that need addressing."

The report found that:

• Low-income workers are likely to lose as much as 10% of the money they have saved by making a poor choice of annuity when they retire

• Employees and trustees have no obligation to guide workers towards good pension deals, apart from distributing a generic leaflet

• Four out of five workers will save less than £50,000 into their pension pots, putting them below the threshold for specialist annuity advice

• Best buy annuities may not be quite what they seem, with "shop around" prices often misleading.

Annuities are among the most complex and despised financial products in Britain. Unlike employees in final-salary-based schemes, who pick up a retirement income based on their number of years of service, workers in "defined contribution" pension schemes are forced into buying annuities, which have tumbled in value in recent years.

In 1990, a male aged 65 could swap £100,000 in savings for an annuity paying out an income of £16,000 per year, but falling interest rates and improved longevity mean that the same sum will now only produce an income of £6,000 a year.

The NAPF is calling for better pricing transparency in the annuity market, and for employers and trustees to take a greater role in guiding employees when they choose an annuity. If the market continues to fail, it recommends the introduction of a "national annuity service", which would help ensure employees find the best deal.

Professor David Blake, director of the Pensions Institute, endorsed the NAPF report. He said: "Many members of defined contribution (DC) schemes are at risk of getting a poor outcome when it comes to buying their annuity. Part of the reason for this is the absence of transparency in the industry. Part is due to advisers' reluctance to offer advice to members with small pots, because the fees or commissions are too small.

"But the main reason is that the majority of DC scheme members just do not understand annuities and the complexities of the 'decumulation' process. They should not be blamed for this. Buying an annuity is a one-off decision, so people cannot rely on previous experience to guide them. Further information provision and appeals for greater customer engagement will not get around this problem alone."

Patrick Collinson

Public sector pension reforms ‘won’t make long-term savings’

Pensions — Tue, 31 Jan 2012 11:52:09 +0000

Analysis from the Institute of Fiscal Studies shows that lower earners in the public sector would get a more generous pension as a result of the reforms

Controversial reforms to public sector pensions are unlikely to save the government money over the longer term, according to analysis by the Institute of Fiscal Studies (IFS).

The reforms include a switch from final salary schemes to pensions based on career average earnings, an increase in contributions by members, a retirement age pegged to the state pension age, and switching the way pensions are increased each year from RPI to the lower CPI.

Negotiations between the government and unions are ongoing, but have already led to strikes by members of 29 unions including teachers, hospital employees, paramedics, council staff and other civil servants at the end of November 2011.

The government said the intention of the reforms was to improve fairness and control the cost of these schemes, which are estimated to cost the taxpayer £32bn a year and provide pensions far superior to those earned by most people in the private sector.

But the IFS analysis indicates that while the move from RPI to CPI indexation will substantially reduce expected costs and generosity of pensions paid out to retired members, reforms to the structure of the schemes will make little difference to the long-term costs.

The think-tank said that, in general, lower earners in the public sector would get a more generous pension as a result of the reforms, being able to retire at age 65 with a higher annual pension than they would receive under current arrangements.

This is because staff earning less than £15,000 will be exempt from increased contributions, and the move from final salary to career average schemes includes improvements to accrual rates, which control the amount of money attributed to a member's pension pot each year.

Conversely, higher earners are likely to lose out. The move from final salary to career average relatively penalises those who see big increases in their earnings over time, particularly towards the end of their career.

The IFS said that by increasing the generosity to lower earners – a group less likely to have a good occupational pension in the private sector – the reforms increase the difference between pension provision in the public and the private sectors.

Carl Emmerson, deputy director of the IFS and co-author of the paper, said: "The reforms to public service pensions implemented by the last Labour government, and this government's decision to switch from RPI to CPI indexation of pension benefits, will in the long run reduce the generosity and therefore the cost of these schemes to the taxpayer.

"But the consequence of the long drawn-out negotiations over the latest [structural] reform appears to be little or no long-term saving to the taxpayer or reduction in generosity, on average, of pensions for public service workers."

However the TUC's general secretary, Brendan Barber, refuted the IFS analysis, saying it examined only one of the three major changes to public sector pensions: "If you take the package as a whole there can be no doubt that many public sector workers may have to pay more, work longer and get a pension that will not keep up with the proper measure of the cost of living."

Jill Insley

Public sector pension reforms ‘won’t make long-term savings’

Jill Insley — Tue, 31 Jan 2012 11:52:09 +0000

Analysis from the Institute of Fiscal Studies shows that lower earners in the public sector would get a more generous pension as a result of the reforms

Controversial reforms to public sector pensions are unlikely to save the government money over the longer term, according to analysis by the Institute of Fiscal Studies (IFS).

Jill Insley

How the biggest ever state pension changes will affect millions of women

Pensions — Sat, 28 Jan 2012 00:07:59 +0000

Charges to the new minimum state pension age will hit women disproportionately. So what can you do to soften the blow?

The next five years will see the biggest changes ever made to women's pensions, with millions seeing their state retirement age delayed from 60 to 66 and beyond, and benefits being cut by the government and poorly performing stock markets.

Less than a third of women expect to be "financially comfortable" in retirement, according to figures from Prudential. The average expected UK retirement income across both genders for this year is £15,500 – around 16% lower than it was in 2008.

Women, in particular, have difficulty in saving sufficiently for retirement as they often take time off work to raise a family, which can set them back on the career ladder and reduce the amount they can afford to put away for pensions.

However, there are ways you can help yourself, so here is our guide to what the changes mean for you.

State pension

We are living longer, and that means the pension system is struggling to afford to pay a higher number of pensioners with a relatively lower number of workers paying into the scheme. In 1926 when the state pension age was introduced at 65, nine workers were paying in to the system to one pensioner taking out. Now the ratio has dropped to three to one.

So the government is delaying payment of the state pension to 67 in 2026, but by October 2020, both men and women will be retiring at 66. Since women have a greater rise in pension age in this time, from 60 to 66, they are disproportionately affected.

What you can do Find out your expected state pension retirement age using the Pensions Service calculator online. Many women will not have built up a sufficient national insurance record (30 years of payments) to qualify for the full state pension. But if you have taken time out of your career to raise a family or care for someone, you are entitled to home responsibilities protection. Under HRP, the government reduced the number of qualifying years you needed to have paid NI contributions to get a full basic state pension. HRP applied before 6 April 2010, after which it was replaced with national insurance credits.

NI credits are now paid if you are getting child benefit for a child under 12, or caring for someone getting attendance allowance, higher rates of disability living allowance, or constant attendance allowance for at least 20 hours a week. There is no limit to how many years these will be applied.

To claim, get in touch with HM Revenue & Customs and ask for application form CF411, or download it. Prior to 2010, you needed 39 years' full NI contributions for a full state pension as a woman, but this has been reduced to 30 years for men and women from 6 April, 2010.

You can make up a shortfall in your NI payments record to ensure you qualify for the full basic state pension. "However, remember that because the number of qualifying years you need for a full basic state pension has reduced to 30 for people reaching state pension age on or after 6 April 2010, you'll need to consider carefully whether you need to top up at all," according to Direct.gov. For details on topping up

State add-on pension (Additional/SSP/Serps)

The state second pension, also known as the additional state pension (ASP), and which before April 2002 was called the state earnings related pension, or Serps, is a top-up to your state pension if you have been paying national insurance above certain levels.

It's worth a maximum of £159.52 a week, or £8,295 a year, so it's not to be sniffed at. But it's fiendishly complex to work out what you're entitled to and how you can boost it.

If you are earning more than the 2011/12 threshold level of £5,304, some of your NI contributions will be going into your ASP. But you may have been "contracted out" of the ASP, and are probably not building up an entitlement. Instead you pay a reduced NI amount, with the money instead going into a private pension scheme dependent on stock market performance.

You can obtain a forecast on the value of your state pension, including the ASP and other entitlements by calling 0845 3000 168. Make sure you have your NI number to hand.

Unfortunately there is no way you can top up your ASP in the way that you can make up shortfalls in your basic state pension. But the government is consulting on the introduction of a universal state pension, worth about £140 a week for everyone, which will help women previously worse off because they took time out from work for family reasons. Existing entitlements built up under Serps/SSP/ASP should not be affected.

The age rules for "contracted out" schemes will dictate when you can retire, rather than the state pension age – so you may be able to take your ASP earlier than the state would allow.

Women working in the public sector

There are more women working in the public sector than men, but the average woman's public sector pension in local government is £2,800 (£3,500 in the NHS). Public sector workers are being asked to pay more into these schemes and take less out at retirement. This comes with a pay freeze until 2013, and wage rises capped at 1% a year until 2015.

Negotiations are ongoing, but the latest proposals being considered for the NHS scheme include terms that mean those less than 10 years away from retirement would not face any change to their pension, and that no one earning less than £26,000 a year would pay an increase in contributions next year. It would also provide a pension based on career average pay, but the accrual rate would be improved to 1/54th.

What you can do Keep in touch with your union rep to get the latest information on negotiations. Under the proposals, there are concerns some low-paid workers may consider opting out of their pension altogether. This should not be considered without getting advice.

Private sector pensions

There are almost no "final salary" style schemes in the private sector these days, as companies cannot afford to run them. This month Shell became the last FTSE 100 company to close its final salary scheme to new members.

The alternative, so-called "defined contribution" schemes, give you a pension based on how much you put in and how your investments perform.

If your employer has a pension and you are not in it, then sign up if you are eligible. Not being in an employer's pension is like volunteering for a pay cut if the employer makes contributions.

From October, the government is doing this for you, as your employer will have to start enrolling employees into its pension scheme automatically. They must also make a minimum 3% contribution to the fund on your behalf.

If you do not have access to an employer's scheme, or you are self-employed, get advice about how to maximise your pension savings.

The taxman will give you tax relief at your marginal rate, so if you are a 20% taxpayer, putting £80 into a pension will give you £100. This means that those paying 40% or more in tax, will get tax relief at that amount. The sooner you start, the bigger your pension pot at retirement.

Pensions: auto enrolment for small businesses delayed until 2017

Jill Insley — Wed, 25 Jan 2012 16:13:01 +0000

Implementation of auto enrolment pensions will be staggered over five years to allow smaller firms longer to prepare

Workers at some of the UK's smallest companies will have to wait five years before being automatically enrolled into their employer's pension scheme after the government announced a revised timetable for its plans.

From October 2012, employees will begin to be automatically enrolled into company schemes in a change the government claims will give up to 10 million people access to a workplace pension scheme for the first time.

Implementation will be staggered, with the biggest employers expected to start enrolling their employees first – the aim is that all firms will implement the scheme by 1 April 2017.

The dates for employers with 250 employees or more remain unchanged. Nine of the biggest employers will implement the scheme on 1 October 2012, and the other large firms will follow suit until all have introduced auto enrolment by 1 February 2014.

But the DWP said given the "exceptionally tough economic time", smaller firms will be given longer to introduce the scheme.

Those with 50 to 249 staff must now implement the scheme between 1 April 2014 and 1 April 2015; those with 30 to 49 staff between 1 August 2015 and 1 October 2015; while those with fewer than 30 qualifying workers must implement the scheme between 1 January 2016 and 1 April 2017.

Firms which begin trading between April 2012 and September 2017 will have implementation dates ranging from 1 May 2017 to 1 February 2018. Those launching from October 2017 onwards must implement auto enrolment immediately.

Under the auto enrolment scheme qualifying workers will be enrolled into a workplace pension scheme and will have to actively opt out if they do not want to be a member.

Contributions will start at 1% from the employee and 1% from the employer. Once all employers have implemented the scheme contributions will increase in stages with firms eventually putting forward at least 3% of their employees' salary, and the employee adding at least 4%. Their contributions will also benefit from 1% tax relief. Full contributions must be paid from 1 October 2018.

The minister for pensions Steve Webb said: "Automatic enrolment will begin on time this October, taking up to 10 million people into pension saving – many for the first time ever – and all employers will be part of it.

"We have done all we can to ease any burden on business the reforms will bring, and employers of all sizes now know the date they need to start enrolling their staff."

Employers and their pensions advisers have welcomed the greater clarity, saying the changed dates would help with costs during a recessionary period.

Clive Grimley, a partner at employee benefits consultant Barnett Waddingham, added: "From the employee's point of view, they may be less likely to opt out. However, this change could increase their perception that paying the minimum contribution rates are sufficient."

However, general secretary of the TUC Brenden Barber said the delay was deeply disappointing. "Everyone agrees that we face a pensions crisis, with two out of three private sector workers not in any kind of workplace pension.

"Yet successive governments have delayed the introduction of auto enrolment and the new system will not now be fully in place until three years after the next general election."

He added: "Today's announcement does not just hit the staff of small employers. What's worse is that even workers auto enrolled this year will now have to wait until the end of the staging process before they get their full contribution … it all adds up to a classic case of 'make me good, but not yet'."

Jill Insley

Letter: Unilever staff are right to fight for their pensions

Pensions — Wed, 25 Jan 2012 00:06:16 +0000

Philip Inman (Business analysis, 17 January) claims Unilever workers are "crazy to strike" over their pensions, suggesting they should be grateful they are not losing more and that many other workers are worse off than themselves. The truth is that Unilever employees have been paying 2% more since the scheme was closed to new starters three years ago on the understanding it would continue in the future.

Inman should be criticising the Unilever management for reneging on their promises, before condemning the employees, most of whom have worked for decades with Unilever, without ever even contemplating industrial action. Unilever is an incredibly wealthy consumer goods company, the third largest in the world, making billions of dollars in profit every year and with executives ranking among the highest paid in the corporate world. Unilever's CEO Paul Polman last year pocketed a massive increase of nearly 50% in his remuneration package – about 285 times that of his average worker. Affordability is not an issue, something that Unilever senior management conceded more than once during the consultation period, openly admitting that there was no financial imperative for the change.

Yet the changes will mean a reduction of around 20% – and for some, up to 40% – of the pension employees have worked so hard for over their many years. Management has stated that nothing would persuade them to change their minds, with the prospect of no compromises being reached. Only after weeks of attempts to get the company to continue to talk with their unions did the workers eventually ballot for industrial action. With management refusing to talk, even through conciliation service Acas, it is hard to see what will resolve the current dispute. But one thing is clear: Unilever workers would be crazy not to fight back for a pension that can clearly be afforded by this hugely profitable multinational; the overwhelming support received from the public would seem to bear this out
Jennie Formby
National officer, Unite the Union

Unions debate more pensions strikes

Pensions — Tue, 24 Jan 2012 19:11:44 +0000

Teaching and civil service unions join talks to discuss further industrial action over public sector reform plans

Trade unions opposed to proposed government reforms of public sector pensions are to meet to discuss further industrial action.

The National Union of Teachers, the Public and Commercial Services Union and Unite will be among the organisations at talks on Wednesday representing hundreds of thousands of workers across education, health, local government and the civil service.

A union source said further one-day strikes akin to the 30 November walkouts were unlikely because fewer public sector employees would be involved, now that the Unison and GMB unions had decided to continue talks with the government.

"It could be a wide-ranging campaign rather than saying, 'Let's have one last hurrah' and then riding off into the sunset," the source said.

Dan Milmo

Workplace pensions set for shake-up, says minister

Jill Insley — Tue, 24 Jan 2012 16:52:38 +0000

Steve Webb says a consultation to simplify occupational pension schemes could see a 'bonfire of the regulations'

The government is planning to reinvigorate workplace pensions by conducting a "bonfire of the regulations" in the spring.

Pensions minister Steve Webb said the Department for Work and Pensions would conduct a formal consultation into which rules should be scrapped, with every regulation up for discussion "from the absolutely trivial to the huge". "Every piece of regulation will go unless we can justify its existence," he said.

Laith Khalaf, pension expert with independent financial adviser Hargreaves Lansdown, said simplification would be welcome, but it depended on "what regulations they intend scrapping".

The National Association of Pension Funds (NAPF) said there was "an urgent need to reinvigorate workplace pensions" and that it would offer some recommendations for regulations that could be cut.

Darren Philp, director of policy at the NAPF, said: "Pension schemes have struggled with increasing regulation burdens, and the tough economic climate has made the need for simplification even more pressing.

"We need a regulatory regime that supports pension saving and that is fit for the 21st century."

Webb has already announced his intention to abolish short service refunds – the repayment of contributions to both employers and staff when an employee who is moving jobs opts to cash in a small pension fund rather than have it transferred to another scheme.

He is also believed to be considering changing the rules on indexation of final salary pensions in an attempt to prevent the few remaining private sector schemes from closing. Although the government recently changed the rate at which pensions paid by such schemes increase from RPI to CPI, scrapping this requirement altogether would make funding them easier.

Eradicating the indexation link could wipe £7bn off the value of the pensions of employees who are still working and contributing, but would not affect those already drawing their pensions.

Webb also said the UK would combine forces with other governments, including those of Germany, Ireland and the Netherlands, to fend off European proposals of applying a higher capital requirement, known as Solvency II, to pension funds to ensure their solvency.

If the Solvency II requirements were implemented businesses would have to inject £300bn into their final salary schemes, inevitably leading to the closure of more schemes in the private sector, according to the National Association of Pension Funds.

Webb said: "Solvency II is completely inappropriate for defined benefit [schemes] in the UK. It is just inconcievable that we could apply S2 in that form."

On the day the government started an £11m advertising campaign extolling the benefits of investing in workplace pensions, Webb also defended the decision to delay the introduction of auto enrolment. Firms with fewer than 50 employees will be given an extra 13 months to implement the scheme, while those with fewer than 3,000 will be given an as yet unspecified extension.

This means about 4 million people – the 44% of employees who work for smaller firms and are the least likely to have a workplace pension – will now have to wait until at least May 2015, while start-up businesses will have to enrol their employees on or after 2016.

The auto enrolment scheme requires employers to enrol all staff members on their workplace pension. Employees who do not want to make contributions will actively have to opt out after being enrolled.

The first stage of the scheme will begin with nine big employers enrolling their staff from October 2012, but the government believes up to 9 million people could eventually benefit from it.

Contributions will start at 1% from the employee and 1% from the employer. But once all employers have implemented auto enrolment, contributions will increase in stages with firms eventually putting forward at least 3% of their employees' salary, and the employee adding at least 4%. Their contributions will also benefit from 1% tax relief.

The DWP will publish a timetable for the roll out of auto enrolment and staging of contributions in the next few days.

Jill Insley

Pensions anger as even profitable firms cut benefits

Pensions — Sun, 22 Jan 2012 00:09:03 +0000

When even successful companies such as Shell and Unilever are taking an axe to staff retirement packages, is the outlook bleak for everyone?

Unilever, the maker of everything from Pot Noodles to Dove soap, has infuriated its staff by cutting pension payouts – despite being highly profitable. Shell, another household name, has followed suit with plans to cut retirement incomes.

Unilever suffered a wave of strikes which started last week and will continue for the next five days. Much of the anger among employees at its factories and research units is focused on the company's £6bn operating profit and the pay, bonus and pension top-ups awarded to chief executive Paul Polman. He pocketed £2.8m last year, of which £1.7m was a performance-related bonus. His pension was increased by a company donation of £352,000, according to the 2011 annual report.

For staff, it is a typical them-and-us story of sky-high rewards for directors while shopfloor workers are bullied into accepting reduced standards of living. The changes to pension scheme rules are the flashpoint. However, a closer look at the changes makes it harder to characterise as a poor deal.

In 2008, Unilever made its first move to save costs, but refused to push new staff into the default arrangements adoped by other companies, which rely on stock market investments and put all the risk of generating a retirement income on to the employee. The board said new joiners would receive a pension based on their career-average earnings. It thus maintained the scheme, and effectively guaranteed a maximum cut of only 20% to pension payouts, while rivals were devising schemes for new staff that would mean losses of 60% at least.

Last year Unilever told staff that the costs of providing a pension had soared following a rise in life expectancy, poor investment returns and the threat from more costly regulations. It meant all staff, not just new joiners, needed to move to the new career-average scheme.

Unions are well aware of the rising costs of pension provision. Average life expectancy is 80, up from 72 in the 1970s, according to professor David Leon of the London School of Hygiene and Tropical Medicine's epidemiology unit. He says it is likely to carry on rising as more people stop smoking and eat healthily, though increasing obesity and diabetes could reverse the effect. According to the Office for National Statistics, between 2004-06 and 2008-10 average life expectancy for women rose by a year to 82.3, while for men it rose by 1.2 years to 78.2.

Poor investment returns are the other side of the equation, after a decade of low interest rates and underperforming stock markets. The index of Britain's top 100 companies declined 5.5% last year. In fact, growth in most schemes over the past 10 years has been simply a result of employee and employer contributions. Investment gains, such as they are, have struggled to keep pace with inflation.

Firms also face extra regulatory costs because of European Union plans to categorise occupational pension schemes as insurance vehicles. This will mean they must boost their funding position, something they can only do at their own expense.

Unions also know that the biggest losers from the shift away from final-salary benefits are middle managers on higher pay. Those at the top have risen through the ranks to a much higher salary than the one they started on. A career-average scheme takes into account income levels during the early years of a career and can drag down the total.

Then there is the question of Polman's pension contribution from the company, which amounts to a third of his £1m base salary. It seems a high figure until pension analysts point out that most employees over 50 in a final-salary scheme will enjoy a pension contribution of at least a third of their salary.

One of the main unions in the Unilever battle, Usdaw, supports Tesco's career-average scheme. And the deal it signed meant all staff foregoing their existing final-salary benefits. Unilever will protect all previous commitments.

Shell, on the other hand, is representative of most FTSE 100 firms. It plans to direct new employees into a stock market-related scheme while retaining a final-salary option for existing employees. This is the traditional solution of finance directors, who have disliked the unlimited liability and rising costs of final-salary pension schemes since the mid-1990s.

The banks were the first to ditch their final-salary commitments. In the stock market crash of 2003, almost all the 7,000 remaining firms with final-salary schemes shut them, though, like Shell, only to new members. This created a two-tier workforce inside many companies, something which unions felt obliged to ignore.

Some workplaces took a stand against the shift to retaining final-salary benefits for existing workers and stock-market plans for new staff but, outside the public sector, these campaigns fizzled out.

The UK now has an ageing group of about 2 million employees working towards retirement with their final-salary benefits intact. Another 16-18 million have some of their working life covered by a final-salary scheme.

But the bulk of contributions for 20 million workers with a pension are in the new stock-market schemes that account for 88% of all current contributions, according to pension advisers Towers Watson.

Final-salary schemes usually guarantee to provide a retirement income after 40 years' service worth two-thirds of a worker's final pay cheque. With a stock market-invested pension it is a very different picture. For many people it has meant getting back little more than was put in, despite the stock market having more than doubled its value in 20 years. The result is a pension worth no more than a fifth of final salary.

Fund managers, who are often blamed for siphoning off much of the investment gain in pension schemes to pay their commissions and fees, are unlikely to make much progress in the next few years of recession and lacklustre growth across the developed world. This will only lead to smaller payouts from the new breed of cheaper scheme. In this environment, strikes against businesses such as Unilever that continue to offer generous guarantees could become harder to justify.

Phillip Inman