FT letter – Exposing final salary pension realities – 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

    FT letter – Exposing final salary pension realities

    FT letter – Exposing final salary pension realities

    FT letter – Exposing final salary pension realities

    by Dr. Ros Altmann

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    I must take issue with Professor Oswald’s comments on final salary pensions (letters 18 Mar). He seems to be unaware of modern reality.

    Firstly, Lord Hutton’s case against final salary pensions is clear and is not really about expense. They are ‘inherently unfair’ as they disproportionately reward high-flyers, while failing to cater properly for workers with low salary progression. The whole pension depends on just the final year’s salary, which bears no relationship to contributions paid each year during the worker’s career, thus disadvantaging low-earners or women with interrupted careers who return part-time.

    Secondly, final salary pension systems do not make economic sense. Social welfare should be underwritten by the state, not employers. Employers cannot reliably underwrite unquantifiable, open-ended commitments for many decades into the future. Just changing the accrual rate does nothing to overcome longevity, salary inflation, interest rate and investment risks which have undermined UK schemes.

    Thirdly, rewarding high-flyers is of course appropriate, but surely only while they are working. Continuing to do so when they have finished working – and often for many more years than they actually worked – makes no economic sense.

    Fourthly, attracting and retaining top talent is essential and desirable – but far better achieved with take-home pay, whereby disparities and realities of high-performers’ rewards are transparent. With final salary pensions however, they are hidden – and indeed unknowable at the time.

    The true value and costs of final salary pensions have been underestimated, most private sector employers and shareholders have already found they are unsustainable and Hutton has helped expose these realities for public sector workers and future taxpayers who will have to support them. Change is being fiercely fought, but is unavoidable.

    Yours faithfully

    Dr. Ros Altmann
    The Saga Group
    85 Buckingham Gate
    London SW1E 6PD

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