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What is a pension? Most obviously, an income in retirement. It is at least two other things.
First, it is wages deferred. You sign on the dotted line with company X, and it agrees to deduct a chunk of your salary, and add a bit too, as long as you don’t expect to claim it until you stop working.
This binds you to the company and the company to you in ways that used to be seen as good for both sides and good for society.
Second, it is a promise to pay. When those promises start being broken, we should have a close look at why. Royal Mail said last week that it wants to shut its final salary pension scheme, making 90,000 workers poorer in the process.
The maths is striking (the postmen might soon be, too). A 30-year-old with 10 years’ service at Royal Mail who was expecting to retire on a pension of £15,000 — not exactly a fortune — will see that cut to £7000, a barely liveable pittance.
Some say the closure of the scheme is a matter of inevitability, Royal Mail finally doing what so many big companies have already done. You can see that there’s an issue, since it pays in £400 million a year to the fund and estimates that it would have to pay £1 billion a year in the future.
But that assumes bond yields don’t leap, which they might. Pension funds have long lives; how they look today doesn’t necessarily predict their health later.
Unlike many company schemes, the Royal Mail pension fund isn’t even in deficit; indeed it has a £1.8 billion surplus.
It’s not a matter of certainty that Royal Mail couldn’t keep its promise to staff and give them a proper pension.
When it comes to pensions, it is noticeable the difference in the numbers that get bandied around depending on the audience.
When facing the City, companies like to talk about how much cash they generate, about how profitable they are going to become. When talking to staff about pensions, suddenly that cash doesn’t exist. So they’re fibbing to someone.
Royal Mail chief executive Moya Greene is a good sort, union sources say. She doesn’t want to hack the pensions and is aware that the move will be the most far-lasting and significant impact of her time in charge. She finds the issue awkward, an embarrassment, they say.
Greene, at £1.5 million a year, is poorly paid for a Footsie boss. She does get £200,000 a year lumped into her pension though.
If that amount were suddenly halved, Greene would sue for breach of contract. Moreover, she’d win.
She isn’t in the same fund as her staff, of course, giving her no monetary incentive to protect staff pensions.
We expect that chief executives should own shares in the companies they run, meaning they suffer if investors do. Why shouldn’t they be in the same pension fund as their staff for the same reason?
If we were all in it together, everyone’s pension would surely be higher. Instead, we have a pensions apartheid that sees a lucky few guaranteed a wealthy retirement, and the rest of us scrabbling for security.
We have an odd attitude to pensions in this country, seeming to resent anyone who has secured a good deal. The thinking goes like this: my pension is a hard-earned right. Yours is a gold-plated outrage the nation can no longer afford. His is an unfunded liability.
We don’t want to pay for pensions, seeming to prefer to pay NHS bills for sickness in old age that a proper pension might have avoided. Ryanair chief executive Michael O’Leary likes to dismiss rival British Airways as a pension fund with wings, rather giving the game away that business executives see the paying of pensions as an irritant — a hindrance to doing business, rather than a significant duty of it.
Perhaps there should be a category of awards for chief executives who do the most to protect staff retirements, thereby saving the Government millions in state aid.
Former BHS owner Sir Philip Green need not apply. Moya Greene could put herself in the running just by insisting that old pension promises will be kept, by fighting to get her staff the best possible future deal, even if the final salary fund really has got to close.
For Royal Mail staff and for the rest of us, pension rights were hard won. They should be fought for.