Pensions timebomb warning from union

The Government was urged today to intervene to safeguard the pensions of millions of present and future workers.

Shopworkers union Usdaw condemned the decision of many companies to abandon their final salary pension schemes - and in some cases, discontinue occupational pension schemes altogether. Employers have cited the dramatic decline in stockmarket values, coupled with tax changes, as the reason for pulling out.

"Such short-termism will have serious impact on workers and have grave economic consequences for the nation as a whole in the future," said Usdaw General Secretary Bill Connor. "It is a timebomb ticking away."

He urged the Government to urgently review the pensions tax regime, which has been a disincentive to companies to invest for a rainy day and encouraged many to take a pensions contributions "holiday" over the past decade. Mr Connor was talking in the wake of the decision by several major employers, including Littlewoods, and Boots to discontinue their final salary schemes for new employers and offer them money purchase schemes instead. More ominously, Iceland/Bookers frozen food and wholesaling group has indicated that it intends to wind up its final salary scheme for existing contributors and offer all employees a money purchase alternative.

"We feel that this could be the tip of the iceberg," said Mr Connor.

"It is bad enough when a company denies new employees access to a final salary scheme, but now we have the spectre of millions of existing contributors across the nation facing unexpected anxiety and insecurity in retirement.

"If the trend isn't reversed, we will be storing up colossal problems for the whole country, with serious underfunding of private pension provisions and the diminishing value of state pensions. Millions of people face being locked into poverty in old age.

"All too many companies have enjoyed a pensions holiday while the stockmarket has remained buoyant and are now using the short-term downturn in share prices as an excuse to axe final salary schemes.

"We consider that a contributory pension should be treated as an integral part of one's contractual pay and conditions package, which should be binding on both employer and employee.

"It is scandalous that pension schemes can be fundamentally altered, barred to new members or closed down completely without employees having any power to stop it."

However, Mr Connor said that Usdaw recognised that there were many issues coming together to fuel the current crisis - the Minimum Funding Requirement, new accounting rules (FRS17), the abolition of tax credits on pension fund dividends, the stockmarket recession and last, but not least, people living longer.

"These factors may have put some schemes into real difficulty, which needs addressing, but there is a strong suspicion that some companies have over emphasised these problems and exploited the situation to achieve their own economic ends - to save money at the expense of their workforce," said Mr Connor.

"We feel that companies and their pension schemes could weather the current storm if there was a will to do so, but sadly the will doesn't appear to be there."

Usdaw was urging the Government to introduce the following measures to protect the future of the nation:

• Mechanisms to prevent companies winding up, closing down or fundamentally changing pension schemes without the approval of members or other independent checks.

• An obligation to notify and consult fund members and their unions about proposed changes and to provide key financial information.

• The right of a recognised trade union to bargain on pensions with employers.

• An obligation on employers to make minimum contributions to pension provisions for staff.

• A review of the Accounting Rules and Minimum Funding Requirement with a view to reversing the trend without compromising the security of fund members.

• A review of the incentives and initiatives which might be put in place to support the continuation of final salary schemes and the introduction of new ones.

"This a wake up call, not only to existing workers, but the nation as a whole," said Mr Connor. "If we do not unite to take responsible action, we are sitting on a timebomb".

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© 2003 (USDAW) Union of Shop, Distributive and Allied Workers
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