Monday, May 28, 2012

Molins to Workforce: give up your pension...or else!

It was another bad week for employees last week. At around the same time that the Conservative hedge fund multi-millionaire and sponsor, Beecroft, published his report recommending that companies should be able to sack their employees if they don’t like them, Molins, a FTSE listed UK engineering company was found to have threatened its workforce with the sack if they don’t leave their pension fund!

They decided to close their scheme but their trust deeds did not allow it. So they have issued a section 188 notice to the government saying they are intending to dismiss everyone and then offer to re-engage them on condition that they do not join the pension scheme.

Molins claims that that they cannot afford to run its existing defined benefit scheme. Which is rubbish. It is making good profits and is financially secure.

Pension’s Week suggest that there may be a problem with attracting investment but that is not what they are telling their workers. I think it is just cost cutting and they want to cut the wages of their employees with a substandard pension contribution which will not be enough to give their workers enough money to have security and dignity in their old age.

I gave a statement to “Pensions Week” (part of the FT group) as Chair of the AMNT Working Group to defend and promote Defined Benefit Pension schemes. Part of which they quoted

This is a test to the 2006 pensions regulations, which quite clearly state an employer’s consultation with the workforce has to be meaningful,” said John Gray, Association of Member Nominated Trustees (AMNT) committee member.

“Molins appears to in breach of its own ethics policy. Threatening to sack their staff in order to get out of providing them with a decent pension does not appear to us to be anything like the highest standards of ethical behaviour.”

The AMNT has launched a campaign to support trustees of DB schemes under threat of closure.

What Molins has got to realise is that closing their pension scheme will not make their liabilities disappear. It could make things much, much worse.

Current Pension deficits are worked out using a completely artificial and discredited accounting standard called “mark to market”. Due to a double whammy of recent exceptionally low fund management returns and a 200 year low in the yield of gilts make things appear far more negative  than they actually are.

Not only that but if you panic and close your scheme in response to these meaningless figures then the company faces having to pay even more into the scheme since the fund rapidly becomes cash deficit and has to invest into low yielding bonds and gilts with no equity premium.

Ironically last week I goggled “Molins” and “Pensions” and came across this story from "The Independent" business pages in 1992. The Molins pension scheme was then in surplus by £90 million.

The company was trying to take out £18 million out of the pension scheme to cut company debt and fund acquisitions (and increase benefits). I don’t know if were able to take this money out of their scheme but if they did what would have been the scheme funding now if they did not take out £18 million in 1992?

(NB to be clear this post is my own and not necessarily the views of the AMNT)

UPDATE: Professional Pensions has a good article on this case here
Post a Comment