That all takes some reading, but I'm glad I bothered, even though there is no good news. Once you start looking around the internet, it actually gets a lot worse, this is from MSN Money, as follows:-
The beginning of the end for final salary pensions?
By Nic Cicutti, MSN Money Special Correspondent
Last updated January 5 2006
The long, agonised demise of final salary pensions has moved another step towards reality.
One of the UK’s largest store chains is planning to replace its current pension scheme with another one that will pay its 70,000 workers a lot less money when they retire.
The Co-operative Group, whose staff work in hundreds of stores, banks, funeral homes and distribution centres across the UK, is planning to switch from a proper final salary pension to a career average one.
This means future entitlements to benefits will accrue on the basis of the employee's average salary over their working lifetime.
What is the Co-op doing?
The company insists that the amount it currently contributes towards staff’s pensions remains unchanged. It will still pay employers’ contributions of 16% into the scheme, compared to employees' contributions of 6%. Any rights already accrued under the final salary scheme will be preserved.
However, experts point out that career average schemes generally deliver a pension worth considerably less than a final salary scheme. The value of the annual pension will be at least 10% less, because most staff’s earnings tend to be at their highest at the moment they retire.
Some 22,000 existing members of the final salary schemes will lose out to varying extent. The remaining workforce were not members of the scheme in question but have lost the option to join the final salary schemes in future.
The decision is not yet final. The Co-op is a member-owned body, managed by a board of trustees. Unions, which are strongly represented at the Co-operative Group, have threatened strike action against the proposals. Staff and unions will be consulted before a decision is reached some time before April.
However, the Co-op’s move is only the latest in a long line of company decisions suggesting the death knell may be sounding for final salary schemes.
The demise of final salary schemes?
Some 25,000 staff at Philip Green's fashion group Arcadia, which owns Top Shop, Dorothy Perkins, Wallis and Burton, were told that members of its final salary scheme must increase contributions by half and work five years longer to qualify for the same payout
Arcadia plans to alter its final salary scheme, with employees being asked to contribute 6% rather than the previous 4% of salary into the fund. Staff have already been told that their retirement age will be moved from 60 to 65.
Philip Green, Arcadia's owner, whose family collected dividends totalling £1.2 billion last year, says increasing contributions means the average annual staff pension will increase from £8,100 to £9,800.
Caught in a rat-trap
Meanwhile, the security-to-hygiene firm Rentokil announced plans just before Christmas to close its final salary pension scheme to existing staff.
Guaranteed benefits will remain at current levels, no matter how long members stay with the company.
Rentokil adds that it will consult workers before proceeding with the plan and will offer staff an alternative pension scheme.
The firm says its plans, the first such move by a FTSE 100 company, are aimed at tackling rising pension costs. Rentokil has a £325 million pension fund deficit, partly caused by its pensions holiday between October 1999 and March 2003, when it made no contributions at all into its scheme.
For an excellent analysis of the Rentokil pensions debacle, look no further than a brilliant piece by my MSN Money fellow-columnist Nick Louth
More general attacks to final salary schemes
According to the National Association of Pension Funds, the umbrella body whose members include millions of workers, almost 60% of existing schemes no longer offer final salary options to new joiners.
Some 24% more estimate that they will go down the same path in the next five years.
Read more abut the report here (opens in new window)
Punter Southall, the pensions consultancy firm, estimates that the 10 FTSE 100 companies with the largest pensions deficits have a combined shortfall totalling more than £25 billion.
With the Pensions Regulator wanting companies to fund these deficits before 2015, it is seemingly inevitable that more businesses will close their final salary schemes to existing members.
Why final salary schemes are under threat
Everyone is looking for someone to blame for the demise of occupational schemes.
The truth is that there are a number of issues impacting on the cost of pension schemes. Here they are, in no particular order:
Longevity is rising: The average scheme member retiring today will live longer than actuarially assumed. Pension schemes are therefore having to pay pensions for longer than anticipated. The increased number of pensioners living longer raises the age profile of the scheme which, in turn, increases the ongoing funding levels.
Interest rates have fallen: As well as having to pay pensions for longer, the current climate of low interest rates adds to the expense of purchasing an annuity. Pension funds are having to set aside larger sums to pay income than they needed to a few years ago. In fact, since the early 1990s, annuity rates have fallen by approximately 50%, with this trend likely to continue in the near future.
Equity investments have fallen: The majority of pension funds have a sizeable portion of their funds invested in equities, which have fallen over the past five years, although they are ahead over longer periods of 10 years or more.
Inland Revenue tax raids: The taxman decided to tax any surplus above 105% funding, so there was no incentive to let the surpluses build up. Also, the removal of advance corporation tax (ACT) relief, costing funds £5 billion a year.
Pensions holidays: Employers used pension funds to hide the costs of industrial restructuring and took contribution holidays, instead of building up surpluses in the good times.
Government costs: Successive governments heaped huge extra costs on schemes over the years, including index-linking, which cost funds an extra 20%; spouse’s pensions, which added another 20%; the right to early retirement in some instances; plus costs of compliance and meeting new accounting standards, which require companies to identify and fund shortfalls within a specified time period.
What to do if your scheme is under threat of closure
If you are a member, contact your union for advice and representation. Unions have been successful in maintaining retirement benefits for many of their members.
If you are not a member of a trade union, ask your employer if they offer access to any other type of pension scheme, such as:
A money purchase (or defined contribution) occupational pension scheme
A group personal pension plan (GPPP)
A stakeholder pension
If your only option is to join a money purchase scheme, it is worth doing so, as your employer will contribute. Work out how much this will be and how much it will cost to replace the benefits you would have received as part of your final salary scheme, such as life cover.
Compare this with how much you think you will need to live on in retirement. You will have to make up the shortfall, which may be possible through additional contributions to your employer's money purchase scheme.
Alternatively, your company may have an additional voluntary contribution (AVC) scheme that you can put money into. Or you could opt for a stakeholder-style plan: if you earn less than £30,000, you can invest in a stakeholder alongside your money purchase scheme.
