Pensions: the worst financial scandal of all

THIS is not an Enron. This is not even a Maxwell. This is something far, far bigger. The pensions rip-off now taking place in Britain will affect millions of employees and their families, effectively consigning huge numbers of the workforce to an impoverished old age.

What started with companies taking fright and closing their final salary pension schemes to new joiners escalated last week with accountancy firm Ernst & Young and hard-pressed retailer Iceland shutting their generous final salary schemes to existing employees.

Only once before, in the late Nineties, when W. H. Smith closed its final salary scheme for current, rather than future staff, has a company shown such financial bad faith to its employees.

A recent survey by Financial Mail showed that nearly half of the FTSE 100 companies were either closing final salary schemes to new entrants or had decided not to introduce them in the first place.

Scandalously, there is absolutely nothing workers can do if their employer decides to move the pension scheme goalposts. This is unacceptable.

The only safeguard for employees is that benefits they have built up in a company pension scheme are sacrosanct. When an employee joins a company, the pension scheme is usually one of the major benefits on offer. Millions anticipate staying with the same employer throughout their working lives and bank on collecting a proportion of final salary to see them through retirement.

A pension is - or should be - regarded as a vital element of remuneration. Even in our booming housing market, a pension is the most valuable asset many people will ever amass.

For an employer suddenly to pull the rug on what was, until recently, regarded as a guaranteed perk is shameful. If a worker has to buy an additional pension or savings policy to top up a retirement income, it will cost them dear. Employees are poorer while their bosses save money.

Clearly, investment performance has come under pressure with falling stock markets over the past couple of years. Most pension funds still hold about three-quarters of their money in shares.

Yes, the population is living longer so pensions have to be paid for more years. And, yes, redundancies and early retirement throughout corporate Britain have put extra pressure on pension fund payouts.

In addition, during the Eighties, the Thatcher government sought to encourage employee mobility by forcing pension funds to index-link employee benefits. Returns have also been affected by tax changes introduced by this Government.

But these are not all sudden events. And if companies now find themselves with pension fund shortfalls, they largely have only themselves to blame.

During the Eighties and Nineties, when stock markets were booming and the value of multi-billion pension funds was rising by the day, it was hard to find a major company that was not enjoying a 'holiday' from pension contributions, choosing to keep shareholders happy by sharing the windfall with them rather than with employees.

Many companies took advantage of huge surpluses to restructure their businesses by sacking employees or retiring them early, safe in the knowledge that the pension scheme, rather than their profit-and-loss account, could pick up the tab.

Now, though, they face lower investment returns for many years to come. Worse, from their point of view, n e w accounting rules - known as FRS 17 - will highlight each year whether their pension funds are in surplus or deficit.

The profit-and-loss account will suffer and corporate Britain is squealing to every regulator and government official in the land that FRS 17 is insupportable.

Yet honouring their pensions commitment to employees would merely mean making good the payments they have saved over the past few years.

With company profits already under pressure, there will almost inevitably be a shake-out. The Government's decision to abandon its regulations setting a Minimum Funding Requirement on company schemes leaves more pensioners exposed.

If companies with under-funded pension schemes start going out of business, it will make the fallout from the Maxwell scandal look tepid.

Financial Mail wants to help employees and their families put a stop to the pensions rip-off. If you feel your pension is under threat, tell your story to our Personal Finance Editor, Jeff Prestridge, who can be contacted via email at jeff.prestridge@ mailonsunday.co.uk. And look out for the launch of our major campaign for pensions justice, which starts next Sunday in our awardwinning Personal Finance section.