Site menu:

Site search

Get Updates

Enter your email address to hear about new posts. (You can view my privacy policy here.)


RSS Recent Posts

Archives (month)


The Hutton Contribution

I had always thought that employee contributions into a pension scheme were a mistaken idea. Should I be re-thinking that in the light of Hutton’s report out today? Or should Lord Hutton?

Back in the heyday, when defined benefit pension schemes were all the rage (rather than attracting all the rage), the conventional justification for making employees contribute to a pension scheme was to secure their interest. Scheme designers were desperate for employees to have some sense of engagement. This was the 1960s and 1970s: the idea of pensions in the news headlines or employees striking over benefit levels seemed unthinkable (although some in the industry may have been hoping …).

The downside to this, as I saw it, was that making employees contribute to a scheme gave them much more than a sense of engagement. It encouraged the notion that they had “paid for” their pension and deserved as much out of it as anyone who had paid in the same amount. The fact that the employer had almost invariably paid in far more than the employees – more than twice as much was not unusual – weighed very little in an argument based on entitlement driven by the employees’ own payments.

Faced with public sector pension costs at the current level, it is not surprising that Hutton considers extra contributions from employees as one possible solution. Reducing benefits and delaying retirement dates are other options under his consideration. A combination of all three is more than likely as the final outcome.

My suggestion? The government should set a level of benefit that it is prepared to pay for without any contributions from employees – with additional voluntary top-ups entirely at the employee’s expense, if the employee so chooses.

See also:  Game, Stress & Match

In an age when transparency is expected from financial products, I see little chance of an enduring settlement if we don’t separate out the benefits bought by the employees’ contributions from those paid for by the employer.

And that goes for the private sector too.

Sign up for updates by Email, Twitter or RSS Feed.

Related articles on this website
Tax avoidance has become a hot topic. The Times newspaper has recently unmasked a scheme in which income tax is avoided by the ludicrously simple means of saying the salary ...
Read the complete article
We all know that Harry Redknapp is innocent of tax evasion. A jury has decided that unanimously. But readers of The Times newspaper may have been a little surprised by the ...
Read the complete article
Lindsay Tomlinson is calling for a summit to change the way pension costs are calculated in company accounts. As chairman of the National Association of Pension Funds, Tomlinson would say ...
Read the complete article
I think the three words at the end of the following sentence must be the most chilling – and the most heart-warming – I have ever read from an accounting ...
Read the complete article
Financial accounts are supposed to enable readers to understand the financial position of the entity under review. But, yesterday, the National Association of Pension Funds published a report attacking the ...
Read the complete article
Regular readers of this blog must be sick to death by now of me repeating how much damage accounting standards are doing to pension schemes (here, here, here and, even ...
Read the complete article
… to be giving a presentation whilst the audience is tweeting their comments onto a screen behind your head. Perhaps that’s going to be the way of the future. For me, ...
Read the complete article
The European courts have been causing controversy (again). Judgements handed down in Brussels and Strasbourg have left conservatives (small “c”) aghast and Liberals (big and small “L”) defending the rights-based ...
Read the complete article
You mean we’re NOT supposed to avoid tax?
Redknapp admits his guilt?
Time to start thinking again, I think
Accountants becoming effective?
Shoot the messenger!
Accountants in a tangle with Webb
It’s very disconcerting …
What equal pay teaches us about the Human Rights Act