UAE claimed an emphatic 10-wicket victory over the Netherlands
cricket9 hours ago
Britain’s system of defined benefit schemes, under which employees are promised a level of pension linked to their salary, is in its death throes, held under water by the increasingly onerous obligations imposed on companies by successive governments. What started out as an aspiration to look after retired employees has been progressively raised to a liability of the employer equivalent to a bank overdraft.
The obligation to recognise and service this liability is now life-threatening for many otherwise viable companies, including high-profile businesses like British Telecom. Final-salary schemes are being ditched wholesale, replaced by defined contribution plans where the employee takes the investment risk.
Now even these schemes are under threat. Aon, which specializes in “human capital consulting” has decided that its own human capital can get by on rather less. It’s cutting the contributions it makes to its scheme and inviting its employees to make up the difference.
Aon’s move is likely to be widely followed, but it is merely an opening shot in what promises to be a long war over pension entitlements. A report by Lord Turner, now the chairman of the Financial Services Authority, concluded that we needed a National Pensions Savings Scheme, known jokingly in some quarters by the inaccurate acronym “NatsPiSS”.
The UK government swallowed his recommendations whole, pausing only to change the name to “Personal Account”.
From 2012, every employee who does not opt out of a Personal Account will be forced to put 5 percent of his salary into the scheme, with the employer contributing a further 3 percent.
This is painful, especially for younger workers with more urgent claims on their post-tax income, like a mortgage or children. It’s also nothing like enough to provide a comfortable old age, even for a worker who contributes for 40 years. Paul Macro at consultants Watson Wyatt calculates that his retirement pot would buy a pension of about 16 percent of the salary it replaces.
Meanwhile, the sun is still shining in the public sector, where the UK state underwrites the colossal cost of providing near-universal final salary schemes, and leaves the liability off its books. It’s also high summer for British Members of Parliament, whose defined benefit pensions cost more than 25 percent of their salaries - most of which is met by their employer, the taxpayer.
This pensions apartheid is as offensive as the real thing, and will cause widespread misery once Personal Accounts hit pay packets. Thus the destruction of what used to be one of the best pensions systems in the world continues.
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