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BBC pension victory sounds wrong note for workers
The BBC has won a High Court battle over its plans to cap the amount of pensionable income that can be taken from future pay increases.
by Michelle McGagh on Jun 07, 2012 at 15:52
In the public sector the outlook isn’t much brighter. The London School of Economics has estimated that the public sector deficit stands at £1.3 trillion.
The strain on UK pensions has led many companies to close their final salary schemes in favour of defined contribution or career-average scheme which cost less for the employer. The first is calculated on the contributions that you make and the outcome from the latter is calculated as an average of the salary that you earned in your life at the company rather than on the final salary you have at retirement.
Omen for the future?
Charles Cowling, managing director of JLT Pension Capital Strategies, said capping of pensionable pay increases has been happening for a while but never with such a high profile as the BBC court case.
Those who are lucky enough to remain in a final salary scheme that is not closed to future accruals are likely to see some changes to the way their pension is run, either through the introduction of a cap or a move to a career-average scheme as companies try to contain the cost.
Cowling said that at the moment capping pensionable income is done but limited as companies are more likely to close the DB completely to future accruals.
‘I think the likelihood is we will see less [capping] because the private sector is already closing DB schemes to future accruals and moving to DC schemes, so the liabilities are not affected,’ he said.
‘We will see more schemes closing completely. The other way which is very popular is switching to a career average scheme where you pension is based on an average salary throughout your career which means that if you have a big pay rise the increase affects a smaller bit of your pension rather than the whole lot.
‘Moving to career average and capping pensionable income are ways companies are reducing their expenses but the whole provision of DB [defined benefit] in the private sector is rapidly falling,’ said Cowling.
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