Personal Finance: No victory on pensions

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The Independent Online
THE rulings handed down last week by the European Court on company pensions are difficult to reduce to any simple slogan about victory for sex equality.

In fact they do not seem like victories at all - practically everyone is disgruntled about the outcome.

The original sex equality pensions case was brought by a man who objected to having to work until 65 to claim a full pension while his female colleagues could depart five years earlier with their full entitlement.

In the end, all this has amounted to for men is that women will also have to work until 65 as the vast majority of company pension schemes have equalised the retirement age at 65, not 60 or even 62.

So it has been a dog-in- the-manger victory for the downtrodden male, while women understandably feel aggrieved that once pension ages are made equal they will be worse off. If they retire at 60 as anticipated, they will lose about 20 per cent of their pension stacked up in the years after equal retirement was established at 65.

However, pension entitlement earned in earlier years will still be paid in full at 60 and boosted for 'late' retirement at 65.

So in practice, women's pensions will be split into pre- and post-equal retirement age, and the losses on one side will be balanced during the transition by gains on the other. This is assuming that women over 60 have the opportunity to keep on working.

This adds yet another complication to company pensions, which are already so imbued with the mystique of one-sixtieth of final salary and actuarial alchemy that they remain incomprehensible, and unappreciated by the workforce.

So why should employers go to the trouble and expense of providing them, if they are not perceived as a valuable benefit?

These sex equality judgments are one step closer to an outcome that will fling final salary schemes into oblivion and make workers rely on personal pensions, or company-sponsored pension schemes that give workers an individual account linked to investment performance.

For part-time workers, the victory in gaining the right to join the pension scheme is a solid achievement, but the windfall gain of making this retrospective from 1976 will bypass most part-timers.

There are two problems. First, the ruling from the European Court only has force where the part-timers can show that their exclusion is a matter of sex discrimination. If the gender mix among full- time workers is the same as among part-time workers, the employer might be able to argue that the bar was on other grounds.

It is likely that these grounds will be given an airing in the courts to show the limits of the judgment before all barriers to part-time workers are down.

Companies are increasingly relying on part-timers to provide a flexible and cheap workforce, and they should surely be persuaded to regard them as part of their mainstream workforce rather than a marginal element working for pin money.

Those who were excluded from non-contributory schemes typically run by the banks and finance houses may be able to hop aboard at no cost. But those where the employer has to pay as well will have to put their bit into the pension scheme if they want to claim previous years' service.

Part-timers who are approaching retirement may be able to borrow the cash, as they can take a quarter of the pension entitlement as a tax- free lump sum on retirement.

But employers are hopping mad about the retrospective element in this ruling, and are fearful that they could be forced to pump vast sums into their pension funds.

This is yet another reason why they will increasingly shrink away from these salary-linked albatrosses and let workers take care of their own old age.