Like so many private companies, the BBC has decided it can no longer afford the same generous pension promises it has made in the past. Many staff will end up with significantly lower pensions than they would have been expecting, especially those early in their careers or future high-flyers.
As people are living much longer and the recession has depressed interest rates and investment returns, the costs of providing final salary pensions have soared. Most private-sector schemes are already closed, but public-sector pension schemes have so far escaped the dramatic reforms that have been going on for private-sector workers.
Is this about to change? The BBC is the first major quasi-public sector scheme to announce such significant reductions in future pension costs, but it will not be the last. The Government has already set up a review to establish what changes may be required to ensure that public-sector pensions – which are funded by all taxpayers – are fair and affordable in future.
However, cutting the pensionable salary, as the BBC is proposing, is just one way to reduce future pension costs. There are others, including increasing the pension age or reducing the rate at which pensions accrue each year. Some are calling for these gold-plated, taxpayer-guaranteed pension schemes to be shut altogether, although there is little likelihood of this I think.
Still, change is inevitable. With people living longer and more and more public-sector workers coming up to pension age, costs are rising fast.
The BBC announcement is likely to be the canary in the coalmine for public-sector pensions, heralding coming changes. That will leave more workers facing a poorer retirement, and it is important to recognise that employers can no longer be relied upon to guarantee a decent retirement in future. Increasingly, people will be on their own and will have to either save a lot more or work longer.
Ros Altmann is a former Government pension adviserReuse content