Think tank: scrap all UK final salary schemes

UK – A financial markets think tank wants all final salary schemes in the UK to be abolished – calling for a “D-Day” when they are abolished across the board.

“We need a D-Day on which final salary schemes would be abolished across the board,” says Andrew Hilton, the director of the Centre for the Study of Financial Innovation and a former economist at the World Bank.

The centre is a London-based think tank backed by some big finance names. It is chaired by former Midland Bank chief executive Sir Brian Pearse. Board members include former Bank of England directors and Monetary Policy Committee members, former treasury officials as well as former top executives at firms such as UBS and Merrill Lynch.

Hilton saw obvious obstacles to his proposal – “members of parliament will be reluctant to unwind the immensely generous scheme they have just awarded themselves”. And “fat-cat civil servants” who would not be keen to draft the legislation.

Writing in the Financial Times, Hilton saw a potentially catastrophic impact of current pensions law on many large companies. “Imagine a closed defined benefit scheme with a funding deficit equivalent to the sponsor’s market capitalisation. As the fund matures and most beneficiaries are pensioners, trustees may decide to force the liquidation of the company to replenish the pensions pot.”

Hilton says: “Pensions law is not tested on this point but it could prove catastrophic for many big corporate names.”

“Britain is blundering into a world of profound social division based on pension provision,” he writes.

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