• Home
• Bee-Mail
• Pensions A–Z
• Sound & Vision
• PensionsGuru Cartoons
• About this site
• Hype
• Contact

Bee-Mail archive

RSS Feed

Bee-Mail - 14 May 2010

Inflation ate my pension!

Inflation-proofing a pension costs a great deal of money. It's another one of the valuable benefits that people in the old-fashioned final salary pension schemes took for granted. Many employers these days, in the private sector at least, are looking to reduce the long term costs associated with running final salary pension schemes for their employees. Indeed, the vast majority of the final salary schemes in the private sector in the UK are now closed to new entrants. 

Closing a scheme to new employees is the first step to closing a scheme down for good if you think about it. If no new members join the scheme then, as employees leave service, retire or die then the number of people covered by the scheme in future will only be going one way; down. But many employers are looking to reduce their future costs at a faster rate these days. At the extreme they could simply stop existing members from accruing any more benefits in the future. You've probably read in the papers over the last year or so that some employers have already taken that drastic step. Many others have gone to a more halfway house type of approach. Other options are to ask employees to pay higher levels of personal contributions to help with the costs; to reduce the accrual rate of future pension benefits from 60ths, say, to 80ths; or to remove the generous levels of pension increases that many schemes still provide to pensions in payment.

Again, just reading the papers you'll probably already be aware that an increasing number of employers are taking one, or even a combination of many, of those steps to bring down their own costs. I was thinking about one of those methods of cost saving the other day - reducing the promise to increase pensions in payment. To a lot of employees that seems to be the one that they need to worry about the least, but I'm not sure I agree with that.

Anyway, this topic is the subject of this week's Pension Conversations cartoon and you can get to read it if you want to by following the link here; it's called Inflation Ate my Pension!

While I'm on the subject of the cartoons I'd also like to say thanks to the many of you who've written in to say how much you like them. I wasn't sure to start with whether we should put them on the site at all if I'm being honest, but I'm really pleased they seem to have turned out to be some of the most viewed pages on JargonFreePensions. Once again, I suppose, it all just goes to show that my gut instinct for things is rubbish; I think I should just leave all the decisions to Ms Bruun in the future...