Employees see a further drop in their pensions
Lane, Clark and Peacock’s 18th annual survey released today has some interesting – but dispiriting – findings on the pension schemes run for employees of FTSE 100 companies.
Two key findings are the growing shift to defined contribution provision, and the change from RPI to CPI to uprate private sector schemes. The latter has resulted in a significant shift in the value of pension liabilities. The aggregate FTSE 100 pension deficit now stands at £19bn, down from £51bn on the previous year. But, as LCP recognises, this is at the expense of scheme members. If CPI were to average 0.75% per year less than RPI, a pensioner retiring at age 60 on 10,000 per year would see their benefit eroded by nearly 1,200 per year in today’s terms by the time they reach age 75.
The difference is even more significant for a deferred pensioner whose pension has yet to come into payment. According to LCP a 45 year old expecting RPI uprating up to retirement and during retirement could lose around a quarter of the value of their pension.
Not all companies are affected to the same degree as a result of the change to CPI for private sector schemes as it depends on the wording of the scheme’s rules, but for example, BT has had a huge reduction in its scheme liabilities of £3.5billion. The TUC continues to oppose the change to CPI for all pensions and benefits.
Another noteworthy finding is the continuing shift to defined contribution pensions. Fifteen more companies closed their final salary schemes to future accrual in 2010 or announced their intention to do so. The survey doesn’t examine the type of pension held by different types of employees, but this is something that both the TUC and ONS have explored is further detail.
The ONS Pension Trends survey recently showed that membership of employer-sponsored pension schemes is closely related to income. Employees with high earnings are more likely to be a member of a pension scheme than those lower down on the wages ladder. In 2010, only 16% of male and 27% of female full-time employees earning less than £300 per week belonged to a pension scheme.
The TUC’s own PensionsWatch examines director’s pensions. In 2010 it found that the highest paid directors in each company have pension pots worth £5.26 million, providing an average annual pension of £298,503. The average director’s pension is now 26 times the average occupational pension (£8,736).
The survey also showed that despite companies continuing to move away from defined benefit(DB) schemes for ordinary staff, the majority (54%) of top directors are still in DB schemes and many directors are in more than one scheme. Nearly two thirds of companies (63.5%) provide DB schemes for at least some directors. The most common accrual rate was 1/30th – far more generous than the 1/60th to 1/80th typical for the majority of ordinary scheme members.
For directors in defined contribution (DC) schemes, the average company contribution was £134,760 and the average contribution rate was 19%, around three times the rates normally available to employees (6.7%).