The last time we heard on these pages from the family of Beatrice Bellman – Maureen Lipman’s carping character Beattie in those old British Telecom advertisements – her tribe was troubled. Henpecked son Melvyn was approaching an extremely well-earned retirement, while grandson Anthony was in the prime of his career, having heroically shrugged off his memorable disappointment at only attaining exam passes in pottery (“Anthony, people will always need plates”) and sociology (“he gets an ‘ology’ and he says he’s failed!”).
The problem they were facing was that their employer, BT Group, could not afford to pay the pensions it had promised both men when each joined the company, and it needed to come up with a fudge. Last week, after numerous stalled attempts, the plan arrived.
The good news for Melvyn and Anthony is that about £2bn of BT’s cash, plus a further £2bn raised from a bond and a decade’s worth of £900m annual contributions, will now be stuffed into the pension fund, which is around £11.3bn in deficit.
The bad news is that this announcement was part of a wider modernisation package that will see about 13,000 staff lose their jobs – which, considering their ages, is probably worse news for the younger Anthony than the more mature Melvyn.
Quite how we all afford the dotages we have come to expect is a worry for many more families than the fictional Bellmans, and the BT announcement is a reminder of how few perfect solutions there are in this sphere.
Companies must fund the retirement pledges made to their employees. They also need to pay dividends to the City so that different pension schemes can operate effectively for other workers. Simultaneously, firms must invest in their businesses and provide jobs for staff like Anthony, who, judging from his history, might not relish a return to school to retrain.
You’d be forgiven for thinking that this system is destroying itself, to borrow from Marx (in a shocking departure for this column, that’s Karl, not Groucho). And precisely that quandary will emerge again this week, when another former state monopoly, Royal Mail, announces its results.
Like BT, Royal Mail is also trying to rework what it fears will become company-crushing pension commitments – but in a far more original way.Typically, there are two types of pension scheme: the traditional defined-benefit scheme, where you get a set pension, which companies complain is unaffordable; or, the more modern defined-contribution scheme, where your pension depends on how much is in your personal pot, and which workers complain make retirements unaffordable.
The twist with Royal Mail is that it has agreed with the Communications Workers Union to offer a hybrid solution – a so-called collective defined contribution (CDC) scheme where the fund aims for, rather than promises, a certain payout.
The idea is that all employees pay into a collective fund (like defined-benefit) and not a personal pot (as in defined-contribution). Investment returns can then be enhanced for everyone, as fund managers do not have to hedge bets as each person nears retirement. Meanwhile, employers reckon it’s more affordable because the firm is not on the hook for a set payout, as it is in defined-benefit.
At least, that’s the theory. CDC schemes don’t exist at all in this country and the law would need to be changed to allow them. Meanwhile, even Royal Mail admits that there isn’t much anywhere else in the world that is comparable. So will this work?
To answer that, you might need to ask somebody so bright, and with such foresight, that they have gained an exam pass in an “ology”.
Astrology, that is.
