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Every week just now seems to bring a new, gloomy announcement about company pension schemes. Rolls-Royce, British Airways and the BBC have all decided to downgrade retirement packages for staff. The drive to cut pension costs isn't surprising. Retired staff are living longer, which is hugely costly, as traditional company pensions (called final-salary schemes) aim to give long-serving workers a guaranteed retirement income for as long as they live. This payment is usually based on what staff are earning just before retirement (the final salary).
The employers have to save up to pay for this, but they routinely keep far less money in their pension pots than is needed to pay the existing pensioners plus the promised pensions for current workers (on the grounds that they don't expect to be paying everyone at once).
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But if the company goes under and its pension scheme has a big hole in it, workers don't get their full pensions. (This risk doesn't apply to public sector workers, whose final-salary pensions are paid by the Government.)
Wary staff should look out for a two-step approach to company pension change. The first warning sign is shutting the final-salary deal to new employees. New staff are shunted to schemes where they have to build their own pension pot. Follow-up tactics include asking people who are still in the final-salary scheme to make much higher payments into their pensions; to increase retirement ages (the BBC is planning to do this); and, sometimes, to close the scheme altogether.
A company final-salary pension is still a nice idea. Just don't rely on it for a guaranteed cushy deal when you (finally) retire. 
FIRST POSTED APRIL 28, 2006
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