Consider two of the biggest stories in Britain today. Sir Philip Green faces calls to be stripped of his knighthood and remains in parliament’s firing line over the collapse of BHS, which handed hundreds of millions of pounds to Sir Philip’s family even as its pension scheme blackhole grew ever wider. Now that the company has died, around 11,000 of its employees face an uncertain retirement. Bad enough, but even worse off are the 130,000 people expecting a pension from the old British Steel, now Tata Steel. Whatever happens to this behemoth, those people stand to lose a quarter of their retirement incomes. And members still working and paying into the scheme will lose an average of 40% of their benefits under the Conservative government’s proposals. The devastation that will inflict on thousands of blameless families, from Tyneside to Port Talbot, is unimaginable.
Two exceptional hard-luck stories? If only. They are more likely to be a glimpse of the future that lies ahead for many other employees. Analysis published this week shows that Britain’s biggest companies paid out five times more in dividends last year than they contributed to their pension schemes. Tesco, BAE Systems and Centrica were among the giant firms that, according to the actuaries at Lane Clark & Peacock, paid more to shareholders than they set aside for retirees. Of the entire FTSE-100 index, 56 companies are running deficits on their defined-benefit pension schemes – yet the majority of them could have made up that shortfall “relatively easily”, say the analysts. They chose instead to give the money to the fund managers.
Put this in context. The British are forever being told that a pensions crisis is looming. Research by the EU published in 2009 showed that British pensioners are worse off than their counterparties in Romania. The former pensions minister, Ros Altmann, has called for a parliamentary inquiry into company schemes. Pension fund managers are warning, not unreasonably, about the impact that the lowest interest rates in 5,000 years will have on the returns they can get for retirees. Yet a big part of the problem is surely that businesses have their priorities skewed.
This is one of those bits of research that goes to the heart of what’s wrong with contemporary British capitalism. Consider it a metaphor: faced with a choice between saving for the future of those who have given years and decades in service to their employers, or handing some money to those who may have taken a paper stake for the most fleeting of moments, big British business favours the fast-buck merchants, every time. That doesn’t just explain the underfunding of pension schemes – it accounts for low business investment, the reliance of the private sector on the government to pay for research and development in things such as graphene, and the long squeeze on workers’ pay that set in long before the banking crash.
Under company law, shareholders go right to the back of the queue of dibs on a business’s assets, after pension scheme members. But the big shareholders are the ones who get the face-time with the bosses, and executive pay is closely tied to share prices. Sure, pension savers are shareholders in other companies – but the number of big-fee-claiming middlemen standing between them and their assets is large enough to make that link thin indeed.
Two obvious things can be done. Pensions holidays were always dangerous – now they should be made illegal. Second, as consultant John Ralfe argues, companies must guarantee their pension schemes. In the case of BHS, such a change would have put the Greens on the hook for the pensions – even without the intervention of Frank Field. Such changes will upset the financiers and the more irresponsible executives. They will put the kibosh on a few mergers and acquisitions. But big British business has its priorities wrong. It should be compelled to get them straight.
