What's Wrong with Our Company Pensions? – Ros Altmann

    Ros is a leading authority on both private and state pensions,annuities and
    retirement policy. Numerous major awards have recognised her work to
    demystify finance and make pensions work better for people.

  • Ros Altmann

    Ros Altmann

    What's Wrong with Our Company Pensions?

    What's Wrong with Our Company Pensions?


    Wrong with Our Company Pensions

    by Dr. Ros Altmann

    (All material on this page is subject to copyright and must not be reproduced without the author’s permission.)


    current UK final salary pension system is not fit for purpose. 

    You can contribute to your company pension for 30 or 40 years, or

    you can transfer thousands of pounds in from another scheme, and yet

    still end up with no pension at all!.  Scheme members and the

    public generally believe that their employer’s pension scheme

    ‘guarantees’ to pay them the pension they have been

    ‘promised’.  They have been led to believe that, after

    Maxwell, the Government has put in place proper safeguards to ensure

    that their pensions are well funded and protected by our pensions

    laws.  They know that the assets are held separately from those

    of the company they work for and that trustees (some of whom are

    nominated by the members) are looking after the funds on their

    behalf.  They also know that there is a certain ‘Minimum

    Funding’ level which their fund has to meet, so when they see that

    their fund is in ‘surplus’ on this measure, they assume (quite

    reasonably!) that there are enough assets in the fund to pay their



    this is simply not true.  The Government’s minimum funding

    level does not ensure anything like enough money is in the fund to

    pay the pensions that the employer has ‘promised’ the members. 

    If the employer becomes insolvent, the risk to members’ pensions

    can be enormous.  There is absolutely no safety net for people

    who have contributed to their scheme loyally for many years, or for

    those who may be only days away from retirement.  The law says

    that the only people who are well protected are those who have

    already started drawing their pensions from the scheme.  This

    is the gross unfairness of our current system.  The law says

    that all the assets in the pension fund at the time when an employer

    goes bust must be given first to the pensioners and the independent

    trustees who are employed to wind up the scheme.  Only after

    these people have received all their money, will those not yet

    retired get a look in.  This means that, if all the money is

    used to pay the pensioners and administrators, the rest of the

    scheme members could end up with nothing. 


    no-one is warning members that this can happen.  Any other

    financial product you buy must carry a risk warning – employer final

    salary schemes don’t have to.  Yet the possible range of

    outcomes is so wide and the reality of the situation is that the

    maximum you are likely to get from your employer’s scheme is the

    amount that you have been promised.  But the minimum is zero,

    and there is no way of knowing in advance how much or how little you

    will get if the worst happens.  Some people may be willing to

    take this kind of risk, but others may not, yet no-one is giving

    them the opportunity to make an informed choice because no-one has

    to tell them what the risks are! 


    course, most companies don’t become insolvent and most scheme

    members have so far received the pensions they were expecting. 

    When they work well, final salary pensions are fantastic for

    members.  (Ask the MP’s – they have a superb scheme). 

    But what if you are unlucky enough to be one of the people who is

    caught up in this situation?  Every other country has put in

    some safety net to protect people if their employer’s scheme

    folds.  The UK hasn’t.  But not only have we failed to

    provide any underpin to our pension promises, we have also failed to

    warn people that they are not protected!   


    need to explain to people that what they think is a pensions

    ‘promise’ is not something they can rely on in all

    circumstances.  But if we tell them this and leave the system

    as it is, people may pull out of employer schemes, or may refuse to

    increase their contributions and we may destroy company pensions,

    which is not something that we want to do.  It seems to me,

    therefore, that it is vital that, while warning people of the risks,

    we also introduce some protection.  Just like we have for

    banks, insurance companies, brokers and even holidays, we must have

    an insurance arrangement in place to guarantee at least some minimum

    level of pension to all members of final salary pension schemes. 

    If we don’t, putting money into your company scheme will remain

    similar to putting money into one share on the stock market. 

    If that company goes bust, you could lose all your money. 

    No-one would recommend that you should rely for your retirement

    income on investing in just one single share on the markets. 

    Yet that is what our system boils down to for many people. 

    Pensions law does not protect pension rights at the moment and

    insurance is essential to spread the cost.  It will not be easy

    to organise insurance properly, but Government must get to grips

    with this as soon as possible, if it is to fulfil its obligations to

    protect people who have been encouraged to save for their future.

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