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Final straw for the Co-op

Years ago, in my home town, if you wanted to buy a left-wing paper on a Saturday morning, you would find a few people shouting nasty slogans about Margaret Thatcher outside the Co-op.

Everyone – Maoists who believed Albania to be the ideal workers’ state, Stalin-lovers selling the Morning Star, Trots with their Socialist Workers, Labour stalwarts flogging Tribunes – used to congregate outside the Co-op making a racket.

Was it the sense that, however pallid, the Co-op had some sort of “leftist” past worth huddling around? Most likely it was just the fact that the Co-op didn’t hassle the assorted varieties off its slice of pavement.

How times change. Last week, the Co-op announced that it will be scrapping its final-salary arrangement for its 70,000 staff and moving to a career-average scheme.

According to reports I read, the Co-op professed amazement that anyone should see this as an attack on the future retirement income of its workers. After all, as one of its spokesmen insisted, the amount that the company contributes towards staff pensions will remain unchanged.

The Co-op will still pay employers’ contributions of 16 per cent into the scheme, compared with employees’ contributions of 6 per cent. Any rights already accrued under the final-salary scheme will be preserved. How anyone could see this as an attack on final-salary schemes was beyond this mouthpiece.

Clearly, someone had failed to tell him that career-average schemes generally deliver a pension worth considerably less tha a final-salary scheme and the likely value of staff’s pensions will be at least 10 per cent less, for the simple reason that their earnings tend to be at their highest at the moment they retire.

The decision is not yet final, of course. But what the Co-op’s announcement reflects, as everyone pointed out, is the slow, drawn-out death of final-salary schemes in the private sector.

This, in turn, encourages those among my journalist colleagues who constantly carp about how awful it is that public sector workers alone now enjoy pension entitlements gradually being removed from their private sector colleagues.

The bizarre logic seems to be that, because a member of staff at the Co-op, or Rentokil in late December, or any one of the other high-profile companies that have been attacking final-salary schemes of late, is being stripped of his or her rights, then so should nurses, teachers and civil servants.

Somehow, the reasons behind this attack on employees’ rights are barely explained. Or if they are, it is done by reference to New Labour’s decision in 1997 to remove dividend tax credits for pensions, which is costing schemes some 5bn a year. Or, in the case of Rentokil, they uncritically report the company’s claim that greater longevity among retirees is a key factor in the decision.

Almost none of the reports I read before Christmas pointed out that Rentokil is adding just 24m to cover life expectancy. Or that the company, which has a stated 325m hole in its pension fund, made no employer contributions into its pension scheme between October 1999 to March 2003. Its next payment in April 2004 only covered the period from 2003 to 2004. Or that, in 2000, Rentokil spent 1.5bn buying back its own shares to boost shareholders’ returns.

While Rentokil is happy to scrap the staff final-salary scheme, its treatment of senior execs is touchingly generous, like former chief executive James Wilde, who was axed in July 2004 after he had been in the job for only two months but secured a payoff of 650,000.

Rentokil’s case is not unique. According to Inland Revenue statistics, between 1987-88 and 2000-01 employers took contribution holidays or reductions worth more than 18.5bn. In the same period, just 1.13bn of surplus was used to reduce employee contributions or give employees a contribution holiday.

This means that just over 94 per cent of pension fund surpluses surplus was used for the benefit of employers. Less than 6 per cent went on employee-related benefits, a ratio of around 16:1.

Yet the typical “split” between employer and employee contributions is closer to 2:1. In other words, employees who contributed a third of the total value of a pension fund were getting just 6 per cent of its assets back in improved benefits.

In the past year, there has been a lot of talk – including from the NAPF -about the state’s responsibility towards citizens and how the state pension should be increased to a more realistic level. I agree with those views.

Equally, the NAPF ought to be more honest about the behaviour of some of its members, whose attacks on final-salary schemes have nothing to do with longevity, excessive red tape, ACT “grabs” and all the other excuses trotted out and swallowed whole by many who should know better.

As for the Co-op in my home town, no one sells lefty papers there any longer. But then, the Co-op appears to be abandoning the last vestige of anything that made it seem slightly more “pro-worker” than its retail rivals. As I said earlier, how times change.

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