BBC pensions

Much talk about yesterday’s BBC proposals to cut the deficit in the BBC pension scheme by addressing the scheme’s benefits structure, including not least to redefine the annual growth in final pensionable pay from 1 December next by a maximum of 1%. The BBC is not a public service organisation, in terms of the terms and conditions of employment, and it is not covered by the Hutton Commission review but its presence in public life means that the review itself provides part of the essential backdrop. As BBC blogger Robert Peston commented – from the perspective of a member of the scheme – this creates a huge differential between members of the scheme, whose final salaries are rising by no more than 1%, and former members, whose salaries are fully inflation protected. This creates a major disincentive to remain a member of the scheme – which, as Peston comments, might well be the aim.

It’s not quite as simple as that: at a time of very low inflation, each additional year’s membership of a final salary scheme, coupled with some level of growth in final salary, is likely to mean people are better off remaining in a final salary scheme. Of course, we don’t know what’s likely to happen to inflation (and you can’t tend to switch into and out of a final salary scheme), though this may be an important consideration if the ConDems budget cuts do indeed merrily lead us ‘unavoidably’ into a double-dip recession over the next few years, especially for workers coming up to retirement. At the same time, the so-called ‘fringe’ benefits of final salary scheme membership – such as ill-health retirement and death in service benefits – are likely to prove an additional attraction to remaining in a scheme.

It needs to be borne in mind that the BBC proposals are just that: subject to consultation, and they may well change, not least as a result of discussion with employees as represented through the BBC’s trade unions.

However, the level of attack represented by such moves is significant. Inflation as measured by the Retail Price Index has, over the past, ohh, forty years between 1970 and 2009, grown by an annual average of 6.47% although that includes some periods of high inflation in the 1970s and 1980s; the more recent history over the last twenty years shows annual inflation standing at 2.81% (figures from measuringworth.com). This is clearly a sizable comparative loss, not least since annual wages tend to rise faster than inflation (the BBC scheme, for instance, seems to use a real growth in wages of +2% in its actuarial assumptions).

Any switch to CPI rather than RPI for indexation of benefits – which may well cover some private schemes which draw on old definitions of inflation – will have a further impact on lessening the margin of difference between existing and former members of a scheme: as I commented below, CPI tends to be lower than RPI (on this data set, by about 0.67% per annum).

In any review of pensions provision over the next few years, it is to be hoped that the mantra of ‘fair and affordable’ doesn’t lose sight of the first half of such a phrase.

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