Just as in the US, another area which produces rich harvest of muddled thinking in the UK, too, is the whole vexed question of company pensions.We raise this because the papers here are filled with condemnation of the National Australia Group’s decision to close its defined benefits pension to new entrants at its main British subsidiaries, Yorkshire Bank, Clydesdale Bank and Northern Ireland’s Northern Bank.
Predictably, Sandy Boyle, deputy general secretary of the Unifi union, fulminated – err,boiled, even - against the move, telling the Telegraph that: “This is another nail in the pensions coffin of UK plc. It is a cynical move because it is just three years since NAG gave an unequivocal commitment not to do precisely this. And this is from a company which claims to be operating from a ‘people-based’ agenda. No wonder staff are feeling so angry… this could include industrial action.”
Well, yes. The workers have every right to withdraw their labour if they so desire (though they also have a right not to be coerced by securely-employed and no doubt well-remunerated union jacks-in-office), but the group is run, not for the benefit of its workforce, much less that of Mr Boyle, but for its shareholders and it is perfectly entitled to do what it has done, especially since the terms applicable to existing staff will remain, it seems, unaffected.
Of course, any prospective new employee at the group will be advised to take into consideration that his total compensation will be that much lessened as a result, but we’re sure he or she, being a big boy or girl, will be able to perform the necessary calculus when striking a deal with the personnel department!
What this whole defined benefits/defined contributions debate loses sight of is the fact that the DB system allows the employee to forego the task of taking full responsibility for his future and throws it firmly upon, not just the current pension trustees, but a future generation of workers, owners and managers of the company. Among these, only the shareholders have any tangential obligation at all to people long since retired with whom they have never had any direct dealings, and then only to the extent that contracts, freely drawn up by the firm in the past and fully disclosed to subsequent owners when they invested in it, need to be honoured.
In today’s uncertain and rapidly changing world, to expect one’s employers to undertake a potentially open ended liability to its staff, is a touch unrealistic, to say the least, and, in any case, if the switch to a DC pension –painful though the prospect may seem - means a more active involvement in the provision for one’s retirement – as well as a greater degree of saving to compensate for the larger uncertainties involved - so much the better!
That way the extra capital made available now, if wisely used and if the government and the central bank can be suitably restrained in their depredations upon it, might stand a chance of generating exactly enough material wealth for the pensioner – and indeed all the rest of us - to enjoy in his golden years, rather than having his well-being being underwritten at the expense of capital formation in the future, which is what a DB scheme ultimately relies upon.
