Occupational pittance: Some company pension schemes leave older members with very little to live on

OCCUPATIONAL pension schemes are leaving many former employees trying to cope on very low incomes.

A survey of elderly people's living standards published last month by the Joseph Rowntree Foundation demonstrates that a company pension by itself is no guarantee of an adequate income in retirement. The survey found that one in four households where an occupational pension is being paid are surviving on weekly incomes of pounds 60 or less (single people) or pounds 102 or less for couples.

According to the National Association of Pension Funds, the current average occupational pension is about pounds 2,500 a year, although the NAPF adds that pensioners who changed jobs are likely to be drawing pensions from more than one company scheme. One reason for a low pension may simply be that an employee only worked for a firm for a short time.

However, some pensioners with many years of service are also drawing very low company pensions. James McGrady from Preston, for example, had about 32 years of service with his employer, British Aerospace (and BAe's predecessor companies, English Electric and BAC), but has an annual occupational pension of less than pounds 500.

'I retired in 1982 and took a lump sum of pounds 5,000. My monthly pension was pounds 14 then, but has gone up through annual increases and two ex gratia payments to pounds 37.50 a month,' he says.

He and his wife have limited savings, and rely on the state pension to make up their income.

The problem of low occupational pension levels particularly affects those who have been retired for many years. This is because their final salary levels used to calculate pension entitlement are low compared with today's earnings, and also because pensions are not necessarily increased in line with inflation. Only public-sector pensions are normally inflation- proofed automatically.

A further problem is that improvements in company pension schemes introduced in recent years are frequently not retrospective for existing pensioners. In the case of BAe, for example, pensioners who retired before 1986 did not benefit from the general uplift in entitlement for years of service before 1979 that was introduced for other members of the scheme.

The net effect, according to Peter Ward, a former employee trustee of the BAe pension scheme, campaigning for a better deal for older pensioners, is that employees retiring today with the same service entitlement can benefit from pensions four times or even 10 times as great. 'Most of these badly treated pensioners are now over 80 years old. Unless they are soon given the pensions boost they desperately need, it will be too late for them to benefit,' he said.

BAe has used part of its recent pension fund surplus to make two special increases to those on low pensions. Mr Ward is unhappy, however, that more of the surplus was used to benefit the company through a 'pensions holiday' (a break in the employer's contributions to the pension scheme). An independent actuarial report commissioned by BAe retired members' associations suggested that current employees and pensioners together gained less than a third of the total surplus allocated between 1987 and 1993, and that the remainder was taken by the company's pension holiday.

'Pensioners have made a major contribution to the massive scheme surpluses, yet may still be on pitifully small pensions,' Mr Ward says.

Nigel Tinsley, BAe's pensions director, accepted that the firm gained more than the pensioners from the surplus but argued that the company (which recommenced pensions contributions last year) had traditionally paid more to the pension fund than employees. 'We have maintained the full value of pensions in payment by linking them to RPI and have made special increases for people on small pensions,' he said.

The Imperial Group pensioners' action group, Impac, is also calling on its pension scheme trustees to look at the pensions being paid to older company pensioners. 'Older retired people have fallen behind,' said Impac's chairman, Michael Smedley. He, too, says that his firm's pension holiday has caused pensioners concern. 'It makes the pensioners very annoyed,' he said. 'They feel that it is money they've put in previously that is paying for the holiday.'

Both Mr Ward and Mr Smedley said the interests of pensioners in company pension schemes could only be defended if they were adequately represented among the trustees. Mr Smedley said that at least 50 per cent of the trustees should represent their interests.