The John Lewis group has just axed its final salary pension scheme. In fact, it’s just axed the entire idea of a defined benefits pension scheme. Given that it was one of the last in the country in the private sector this isn’t all that much of a surprise. But it does show that such axing is not a preserve of the capitalists like Philip Green. For John Lewis is a socialist organisation:
John Lewis has axed the last remnants of its gold-plated pension plan in an attempt to fill a hole of nearly £200 million in the scheme. The retailer is severing the link between final salaries and retirement benefits for its 83,900 staff as it battles a steep downturn on the high street. It is among the last private sector employers to offer staff a guaranteed payout in their old age. Defined benefit schemes have become increasingly costly for companies to operate due to record low interest rates and increases in life expectancy.
It’s simply not affordable to be paying someone for 30 or 40 years in retirement based off their working for 30 or 40 years. Not if the wages are going to be anything fun, or the pension income at least.
This is also nothing at all to do with the capitalist lust for profits, or the desire to expropriate the value generation by labour. It’s just maths, the way that spreadsheets work. Ignore investment returns, discounting and all that for a moment. Imagine that 30 years of work has to pay for 60 years of income.
No, not that we’re there quite yet and we shouldn’t ignore investment returns and so on. But just to keep things simple for the example.
If 30 years work has to produce 60 years income then 50% of the wages paid while working will actually be that pension.
Now think back two generations. 30 years of work had to pay for say 35 years of income – again an exaggeration just to emphasise. In that case only 16% of wages are that pension.
So, working lives have shortened over time. We start considerably later, degrees for all, we’re not going to work at 14 any more either. Life expectancies have soared. Both are just fine, laudable even. But the financial model built for short retirements just isn’t going to work when the Golden Years approach the same decades as the working life preceding them.
And again, this is nothing to do with capitalism:
Last month it cut staff bonuses from 5 per cent of salary to 3 per cent after a slump in profits. In March, Sir Charles Mayfield, its departing chairman, warned that staff could not expect to enjoy annual bonuses and a generous pension entitlement, saying: “You can’t have it twice.”
How do you want your pay? Now or as a pension?