Still, that’s quite an assumption. Industrial action in the banking sector is a rarity, but union members at Barclays are being balloted on whether to strike over their scheme’s closure. The bank will get its way if it holds its nerve, but this will not be the last dispute we see of this nature.
Watson Wyatt, the actuary, predicted yesterday that one in two final salary schemes will close to existing members over the next three years. That would be the most savage attack on workers’ pay and benefits in memory ? and one the unions would have no option but to fight.
Not that they can win. Pension scheme members are the indirect victims of the sort of regulatory over-reaction that the banks at one stage feared would follow the credit crunch. It’s a neat parallel in fact. There was a time when the Government allowed pension schemes to go under ? for years, it refused to compensate more than 100,000 British workers who had lost their pensions after watching their employers go bust without having properly funded final salary schemes. In the end, however, it was forced to bail out pension losers, just as it was forced to step in to save the banks.
The price for that rescue has been astronomic. Not only are employers with final salary schemes now forced to pay expensive subscriptions to an industry rescue scheme set up to ensure the State would never again be troubled by a bust plan, but they must also account for the cost of their pension promises much more clearly on their own balance sheets. And, for good measure, the accounting standards that apply to pension schemes themselves have been tightened, resulting in an instant and dramatic increase in funding deficits.
The problem for employers is that this is one-way traffic. Final salary pension scheme deficits have always fluctuated, in line with the volatility of asset prices. But the recent rise in deficits has been caused by new accounting rules rather than market falls that have previously been reversed. And once companies are forced to tell shareholders more about those difficulties ? even if the rules overstate the extent of the problem ? many will feel they have no choice but to close their plans.
Regulators and government are still struggling with how best to police banks so that they can continue to operate as risk-taking lenders, but without the ability to plunge the world into financial crisis. For pension schemes, that dilemma has been solved by slowly regulating them out of existence.
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