But before writing them off, it is worth remembering that other forms of pension schemes have a long history of mugging their members perfectly legally, and are still doing it.
This record may explain some of the instinctive attraction to many employees of transferring from a company scheme to a personal pension, even though on paper the sums sometimes show that it is not the wisest thing to do.
The fact is that final-salary pension schemes have taken billions of pounds from early leavers. The worst abuses have been tackled, beginning in 1975 with the right for an early leaver to receive a deferred pension - yes, there was no right before then to get back more than employee contributions, without the employers' contribution or even interest.
From 1986, with improvements in 1991, indexation of early leavers' benefits was introduced, with a ceiling of 5 per cent. But the indexation was to prices rather than earnings. Prices almost always rise more slowly.
The result is that in a final-salary scheme, pension benefits for early leavers are worse than for those who stay and have an earnings-linked pension. In other words, each year's worth of contributions left in the fund by an early leaver is worth less in pension terms by retirement age than if the employee stays. Someone who works 20 years for one employer still does much better than a person who works 10 years each for two employers.
In a little noticed passage, the Goode report on pension law reform made clear that the committee was deeply divided on this issue, with a minority unsuccessfully urging that early leavers' benefits should be indexed to earnings.
The proposal was rejected partly because it was costly, although the minority thought the expense containable by using a cap. And why on earth should job mobility be penalised, when government policy is to encourage it? Until final salary schemes are fair, the wider the choice of pensions available, the better, and that includes personal pensions.Reuse content