Letter: Unite pension plan had me choking on my porridge

I spluttered on my porridge to read that Sharon Graham, the new general secretary of Unite the Union, is campaigning to get private sector employers to reopen closed defined benefit pension schemes in which the employer guarantees the pension payments (Interview, May 30).

Graham is spot on that DB pensions are “deferred pay” but, since there are no magic pension beans, DB pensions are “instead of” current pay, not “as well as”.

The crucial question for union members is how much pay are they willing to give up today, in exchange for receiving a guaranteed pension in retirement?

The annual cost of the standard 1/60th inflation-linked pension, from age 65, is around 45 per cent of salary. If the employer pays, say, 10 per cent, I bet very few people would give up 35 per cent of their pay for a DB pension. And, even if they do, this still leaves the employer with all the investment and longevity risk.

Meanwhile, Unite is tweaking its own, generous, DB pension. Members will still earn 1/60th or 1/70th of final salary, plus a cash lump sum, from age 63, with contributions up by 1 per cent.

The losers seem to be widows and widowers whose pension will be reduced from 50 to 30 per cent.

John Ralfe
John Ralfe Consulting
Nottingham, UK