Aon, the pension actuary today closed final salary scheme to new entrants. While this move will be met with nothing more than murmurs in most financial circles, those in the know will greet it with howls.
It is no secret that final salary pension schemes have been under pressure in the UK for more than a decade after Gordon Brown scrapped the pension tax credit. Companies which advised large multinationals on their pension provision were seen as the last hold outs for final salary pension schemes.
The news of Aon’s scheme closure and the reduction in its contributions from 12% to 6% surely puts a nail in the coffin of all final salary pension schemes all over the UK.
This makes sense, because if the actuaries who manage billions of pounds of pensioner’s investments cannot make their own pension scheme work, why should the likes of the car manufacturers and the airlines even try?
Final salary pension schemes have long been considered the reward for a lifetime of hard work. Many employers in previous decades paid up to 20% of employee’s total remuneration into a final salary pension scheme.
Today, employees are left to fight their own corner in the vagaries of the stock market. Contributions have fallen from 20% off salary of around 6.5% of salary. The last place for a gilt edged (another previous rock which seems to be losing its lustre if bond markets are to be believed) age retirement seems to be in the public sector where private sector taxpayers foot the bill for fast increasing entitlements to state employees.
The ability of any economy to sustain this level of public funding of a growing government sector at the expense of a fast shrinking private sector surely must be questioned soon. Where will the productive capacity come from?
If I was a government employee, I will be looking on very nervously at the fact that pension actuaries are now starting to close their final salary pension schemes. Taxpayers in the post-bust economy are going to be very hard pressed to afford the pensions of public sector workers.
The mathematics and economics of the situation make this an impossible balancing act. In order to continue to provide the extremely generous pension provisions which public sector workers enjoy, the tax burden on private sector employees must surely rise to meet the growing cost.
Anyone with a modicum of understanding of mathematics or economics knows that this situation cannot be sustained for long. Look out below all those who feed at the public trough. Your old age will be targeted next.
