Never a dull moment in pensions

PENSIONS shouldn’t be this exciting. The tedious but essential task of ensuring an income for retirement has become an explosive subject thanks to cases such as BHS and Tata Steel.

Different in many ways, the two cases highlight how something that should be boring and staid has become at times a corporate scandal, and at others a major problem for British industry.

In the case of BHS, a failed company has left behind a scheme that cannot now meet the pensions expected by its workers. In the case of Tata Steel, the huge scale of the existing pension fund has been one of the critical hurdles to whether the company can continue to operate in the UK.

Exactly how that is being resolved remains unclear – not least whether Tata will itself remain as the sponsor of the pension scheme or whether it will be set adrift to fend for itself.

But in both cases the cost of the pension issue is set to be borne by the employees. Many BHS workers are facing reduced pensions – and no job. Steel workers may be willing to accept reduced benefits if that secures the future of their industry.

We should be under no illusions about what this means. A pension is part of an employee’s pay package. Reducing pension benefits is, in effect, reducing their pay. Doing so to ensure the survival of a company amounts to one thing – the employees bailing out the business.

The widespread concern over company pensions and the security of retirement income is now an incendiary issue in many parts of industry, but it is also a national and political issue.

Falling pensions benefits and fears over retirement security are just as much part of the squeeze on working families as rising prices and stagnating wages. This must be tackled more bravely than is currently the case. For existing pension schemes, consolidation is part of the answer.

One of the best performing pension funds in the UK is the Pension Protection Fund itself – formed to rescue schemes left high and dry by company failures. The PPF is outperforming most company schemes in its investment strategy. Its sheer scale allows it to hedge its investments. The blunt truth is that companies sponsoring pension schemes must make resolving deficits a priority. Not doing so while continuing to pay sizeable dividends to investors is short-termist.

The Government must also stop eroding the tax benefits of pension saving, allowing people to invest more of their income tax free. I am not confident that enough will be done to avoid pension crisis stories continuing to flare up for years. If the current generation of citizens find their retirement income is disappointing, it will be impossible to argue it was unforeseeable.