A final domino has fallen. Shell, the last FTSE 100 company offering new
recruits membership of its generous final salary pension scheme, has announced
the offer is no more.
Shell's decision means not one single FTSE 100 employer now offers the kind
of retirement package that was common 20 years ago. The best schemes boasted
that members would pick up two-thirds of their final salary, although I always
wondered how many, apart from the very top executives, ever achieved this
And Shell, in case anyone needs reminding, is an oil company. Oil companies
are almost immune from the current recession. So why has Shell thrown in the
Shell, the most valuable of British listed companies, said the change was "to
reflect market trends in the UK". In other words, every big company has closed
their scheme to new members, so why shouldn't Shell?
Herd instinct is clearly as important in pensions as in most other areas of
life. It is a matter that the government needs to watch.
For the past 100 years, governments have got away with delivering an
inadequate state retirement pension because they could point to the generous
top-up arrangements from the public and private sectors. Politicians who knew
this was the unspoken deal were clearly asleep when employers began to walk
Shell's announcement marks the end of the major role companies play in
Occupational pension funds not only helped deliver a more decent retirement
income for more than half the population, their funds have also been important
in the functioning and stability of British industry.
Hence the next worrying set of data, this time from the National Association
of Pension Funds (NAPF). If we go back a couple of decades, the great
occupational pension funds were the main owners of British shares. Their
ownership created a virtuous circle. Funds were put aside to meet the future
pension liabilities of today's workforce. Now for the NAPF's bombshell: a
generation ago, up to 60% of a typical pension fund was saved by investing in
British shares. This total had almost halved by 2006 and now, only a few years
later, stands at 12%, barely a third of that level.
The stability to British industry that arose from workers and employers
saving to cover their future pension costs and investing it at home has been
lost, with hardly a squeak in the public debate. The NAPF figures show why so
few 'British' companies are now owned by the country that gave birth to them,
and on whose future prosperity so many of us still rely for our work and,
equally important, our pensions.
Clearly the government has not woken up to what has occurred to the
institutional ownership of British industry. It unveils a new policy to prevent
unjustifiable bonuses. But it no longer has a home team - in the form of pension
funds - to enforce government wishes. Will foreign owners care that much what
the government says?