UK – Mercer Human Resource Consulting has questioned the government’s policy on ensuring the security of final salary pension schemes, saying there is incompatibility between the freedom of employers to fund the pension promise and the public’s being encouraged to believe in the promise’s security.

“One of the harder issues to be addressed is the level of security attached to final salary pension promises,” says Mercer’s head of retirement research Paul Greenwood.

“On the one hand, the Green Paper offers employers further freedom on how this promise is funded. Yet on the other, it wants the public to believe this promise should be fully secure. The two are not compatible.”

Greenwood has calculated that the disparity between the accrued pension promises “above the value of UK scheme funds” is around 270 billion pounds (421 billion euros).

“Either the security issue will continue to be fudged with some schemes failing to deliver, or benefits will have to be cut back.

“Alternatively, the 270 billion pound cost will have to fall to someone, and employers do not have that amount of free funds.”

Greenwood calls for the government to decide on a reasonable level of secure benefits, while giving employers flexibility of funding above that level. This would clarify members’ risk.