Which view is right?
Friday’s papers reported that Shell is closing its Final Salary Pension scheme to new recruits. The name of the type of pension is misleading. What differentiates this type of scheme is that it guarantees a certain level of retirement income with the employer taking the financial risks involved in doing so.
Unusually for a scheme of its type, Shell’s pension fund was fully funded at its 2010 valuation. In 2007 the fund was so well-funded that Shell UK applied for permission to take a contributions holiday.
In defending the closure the Shell spokesman said that the decision was taken: “to reflect market trends in theUK”. Readers will assume that these are the same market trends that have caused senior executive pay to so thoroughly outstrip that of average employee.
Len McCluskey, the General Secretary of UNITE, was happy to share his views. Taking a quick break from getting his members to strike against the government’s relatively puny pension reforms, he lashed out: “This is a disgraceful act, nothing less than greed on the part of one of the world’s richest and most powerful corporations. They have no need whatever to close the scheme.”
Setting aside the slightly Dave Spart tone of the outburst, he has a point. The scheme is fully funded. Shell’s excuse is that it is following corporate fashion. Feeble.
It would be wrong to be unduly harsh on Shell. After all Shell is the last FTSE firm to take this step. The closure of final salary schemes has been a massive blot on the record of the big corporates. For once the Government shows the way.
Were final salary schemes as they stood affordable, given increasing life expectancy? No.
Did corporates have the opportunity to keep schemes that guaranteed a level of remuneration to pensioners but were less generous than existing schemes? Yes.
Did they take that opportunity? No.
Did they ask whether future employees would prefer a less generous scheme guaranteeing retirement income or an all-the-risk sits with the employee money-purchase scheme? No.
In the light of the above answers is the claim: “Employees are our most valuable asset” credible? I am too well brought up to express an opinion.