date: Thursday 21March 2002 embargo: 00.01 Thursday 28 March 2002

Attention: personal finance, industrial, political

employers should get blame for pensions cuts

The decline in final salary pension schemes is the first serious attempt to reduce pay and conditions for staff since the 1930s slump according to a new TUC analysis of the decline in final salary pension schemes published today. The average cost to an employee of a change from a final salary scheme to an alternative represents a pay cut of £40 a week, without taking into account any of the effects of the employee bearing all the risk.

While useful reforms can be made in some regulations such as the FRS17 accounting standard, the TUC study shows the main factor driving cuts in pension provision is employer cost savings.

The TUC study, Pensions in peril, shows that:

• Many employers cut contributions or stopped contributing at all to their pensions during the 1990s, saving around an average £4,000 per employee scheme member. Nearly half of employers are still taking contribution holidays, and there is therefore a real threat to these schemes once the schemes needs full contributions again.

• Employees and pensioners received few benefits from the record stock market performance of the 1990s. While employers contribute twice as much to final salary schemes as employees, they took 16 times more benefit from contributions holidays. The argument then was that was because they had to bear the risk, but now that stock market performance has fallen, they are ending schemes rather than accepting the cost of that risk.

• The average employer who has replaced a final salary scheme with a defined contribution scheme (DC) is paying £2,115 less per employee into the pension. (£40 per week). Very few new DC schemes are as good as the schemes they replace.

• In 1991 there were 5.6 million members of final salary schemes, this had fallen to 3.8 million by 2001 - before recent high profile scheme closures.

• Employers who bar entry to new staff to final salary schemes but keep them for existing staff are establishing a two-tier workforce. Longer established members of staff will cost more, and may find their jobs more insecure than newer staff. Newer staff will soon work out they are effectively paid less than longer serving staff.

• Scrapping final salary schemes will make no immediate difference to company balance sheets, as it will not change the liabilities that FRS17 requires to be disclosed.

• While the TUC and member unions would defend current benefits in final salary schemes, there are alternative ways of reducing employer costs. Scheme members are not being given this option.

• The argument that final salary schemes are no longer appropriate because of enhanced labour mobility is bogus. While there is some evidence that young workers change job more often, the length of time spent in a job for workers over 25 is remarkably constant.

• TUC General Secretary John Monks said, 'The more you look at it, the clearer it is that employers are using FRS17 and tax changes as an excuse to end quality pensions. While we support a review of FRS17, it would be wrong to think that changes would halt the flight from decent pensions.

• 'Employers were happy to take long contributions holidays when the stock market was doing well on the grounds they took the risk in bad times, but as soon as the stock market falls they want to push the entire pensions risk on to their employees.

• 'Pensions provision should be a partnership between individuals, the state and employers. But both the state and employers are trying to reduce their commitment. At a time when people are living longer and the stock market is performing less well, few individuals can afford to build up the pensions pot they need for a decent retirement on their own. The government should link the state pension to earnings and employers should be compelled to contribute to a quality pension.'

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Press release (800 words) issued 28 Mar 2002