Monday, October 03, 2016

The Pension Rip-off

The reason younger workers are poorer is the stripping away of pension wealth. Business Insider reported in August, every younger private-sector worker today is earning on average £6,329 less per year than older workers with Defined Benefit (DB) pension schemes.

DB pension schemes are nearly extinct, thanks to a little-noticed law passed by prime minister Margaret Thatcher's Conservative government in 1986. The law, intended to create a standard legal framework for private pensions, has been used by companies to ditch Defined Benefit schemes and replace them with private "Defined Contribution" (DC) plans, which are a ripoff by comparison. Under DB schemes, workers receive cash pension benefits equivalent to 20% of their salaries. Under DC schemes, they get less than 5%, according to the ONS. In the 1960s, 40% of workers were in DB schemes. Today less than 10% are.

To put that in terms of money, older DB workers today receive about £7,389 per year in pension compensation but younger DC workers get only £1,071 on average. That's a pay cut of £6,318 per year.

Think about your salary. Now add £6,318.

That is how much cash you're missing every year simply because you entered the workforce after 1986.

In total, British workers lose a total of £36 billion a year because they have been barred from DB schemes.

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