Pension fund spin

Lots of hooha today about the details leaked from the forthcoming NAPF Annual Survey that 1 in 4 large private sector organisation plans to close its final salary (the most common type of defined benefit (DB) scheme) to future accruals.

Just to be clear, the first wave of DB closures were to new members, so if you were already in the scheme you kept on building up benefits, but if you joined the firm post-closure you were offered something different. The second wave will mean that even those in DB schemes won't be able to accrue any more benefits within them, though previously accrued benefits remain untouched (until the third wave...?).

A few things to remember, as the BBC correctly noted last night, the NAPF has an agenda here. They want employers to have more freedom of movement, and their threat is that if they don't get it then more of this type of closure are in the pipeline. And they have a bit of a point.

Something else to watch out for is the way this will no doubt be used by anti-pension campaigners on the Right like the TPA as evidence that final salary schemes are unaffordable. A few points to counter - first, this is in one sense just a cost-cutting exercise by companies. They may simply want to spend less on pensions - it doesn't necessarily mean that they couldn't keep the schemes open to current members. Second, in a way this is a result of closing the schemes to new members in the first place - they can't rely on ongoing contributions from incoming members to play about with in terms of funding. Thirdly, the cost pressure on schemes is in no small part due to the extraordinary economic picture. We don't (well, most of us!) argue that private sector banks are fundamentally flawed because they currently need state support. Why does an extremely difficult economic climate say anything particular about different modes of pension provision.

Unfortunately the real losers are the members of the DC schemes that employers and the Right are so keen for us to be in. A mate at a fund management company I met the other day reckoned some retiring on a typical DC scheme today will probably get a pension worth one quarter of what they previously expected.

I'm not naive enough to think that we can bring back DB schemes in their previous form to the private sector. Once FDs woke up to the risk inherent in them they got shot quickly, and I suspect there's no appetite to go back. But neither can we simply ignore the scandal waiting in DC provision (which will be exacerbated by the Right by forcing more people into poor DC schemes if we are not careful). There must be space in the middle?