FT letter final salary pensions confidence trick July 2005

by Dr. Ros Altmann

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Martin Wolf's pertinent analysis of the demise of UK final salary pension schemes should be extended to highlight the role of Government, alongside employers, in the 'confidence trick' and the devastating effect on scheme members. Governments were relying on employers to share the social welfare costs of pension support, in order to reduce future state pension spending. Members - especially in contracted out schemes - were relying on this too. Careless oversight of final salary schemes, recklessly inadequate official funding standards and Government assurances of protection, which never mentioned the risks of not receiving promised pensions, lulled members into a false sense of security. Even the FSA said final salary pensions were 'guaranteed'. This allowed employers to get away with making the promises they could not keep. Meanwhile, tens of thousands of members, despite decades of pension contributions, are finding their retirement security shattered by this charade. Government must acknowledged its responsibility, own up to its mistakes and compensate those who believed the false assurances of safety. The failure of final salary schemes is the fault of flawed UK pension policy, not just employers.

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