Message For Final Salary Pension Scheme Members: Ask For More Now

Final salary pension scheme members are widely considered in the pension industry and beyond as “lucky bastards” from the baby boomers generation.  Scheme trustees, sponsors and regulators have been grimly determined to “get rid ASAP” of a legacy problem.  Shuffle responsibility off to life insurers at almost any price.  The consequence has been life insurers and their support crew are very prosperous.  Discretionary improvements for members?  You must be bloody joking.

Now in spite of actuaries and investment consultants squandering resources through on indexed linked gilts and leveraged LDI, most schemes have more money than they apparently need. That is because life expectancy has proved overstated; interest rate increases have reduced liabilities (the way actuaries calculate them) and inflation has reduced the real value of pensions in payment.  So not living so long and having less buying power than expected is not quite so fortunate.  But who cares?  Be grateful for what you have got.  Boomer.  

Members, it's time to revolt.  Resources are there and the pension industry is in search of options for the money other than bulk transfers.  Ask for more.  Trustees do sometimes ask for discretionary increases - but usually on a “going through the motions” basis knowing the sponsor has to agree and they won't.  Don’t let that happen.

What members should now do is align with today's workers in a campaign to ensure that pension funds and surpluses arising are directed, as originally intended by the Trust, to the benefit of past and present employees.  It’s possible.  Circumstances post the LDI crisis have changed.  HM Treasury want schemes to run on longer and invest in productive assets.  DWP’s current consultation on DB schemes asks what should become of surpluses.  Straight forward.  Within existing legalisation and tax practice there can be “discretionary step ups” in current pensions paid.  This can become common practice.  As part of a package, proposals can be introduced for comparable sums to be added to the DC pots of current employees in new tiers with DB scheme.  Intergenerational fairness addressed.  

What’s needed is to run on long term with a stable, well diversified assets portfolio and with a sponsor provided third party sum as a guarantee.  And don’t forget the well financed Pension Protection Fund covering ever more of your pension should the sponsor fail.  It’s in all stakeholders’ interests.  Not luck.  Just good trustee and sponsor judgement is needed.  Time for members to expect not less but more.  And now.

We suggest writing to the Chair of the scheme trustees and the Chair of the sponsor.  Once they realise there are stakeholders taking an active and informed interest, expect policy changes to follow.  

Suggested letters to Chairs can be found on the website   See Letters To Chairs