In my last blog I recounted comments by Steve Bee regarding Final Salary Pensions. To continue his narrative, he wrote:
“Yes, employees are usually required to pay something towards the cost of such a pension but nowhere near the true cost of the benefit. For a “good” DB scheme, the total annual cost averages out at something like 23 to 25 per cent of payroll. The employer pays the lion’s share of that. And very few employees in such schemes understand or appreciate that.
“But here is the thing those people not in workplace DB schemes fail to understand: to get a “good” pension in retirement, something equivalent to the sort of pension they would get from a “good” DB scheme, they need to save something like one pound in every five earned through the whole of their working life.
“I do not know what the statistics are on that but I would hazard a guess that someone who did so from the age of 18 to 68 (a typical 21st century working life?) would be pretty unusual.
“I certainly do not think many with growing families and a mortgage, or high rental costs, and probably saddled with the task of repaying the price of their higher education, would be in a position to defer a fifth of their earnings year on year. It just does not seem possible.
“And yet we once made this “impossible” idea possible through the active engagement of employers in the provision of DB schemes. Schemes that worked real financial magic for generations of British workers. We need to discover how we might engage employers in making the pension magic work once again.”
I’m not sure if we will ever see the likes of DB Schemes again but it surely must say something to pension contributors (including Employers) that they have to think really hard about ensuring people save enough for retirement.
And maybe the Government should rethink the ridiculously low Lifetime Allowance!