MONEY TALK By Brendan Barber TUC general secretary elect

Are Employers being given bad pensions advice?

Every day we read about yet another employer closing its final salary pension scheme to new members.

It makes difficult reading each time you look in the paper or hear it on the news.

We hear many of the arguments about why companies are closing their final salary schemes, such as the fall in the stock market, people living longer, red tape, and so on.

In addition there is no doubt that some of the pressure is coming from the City.

Credit ratings fall

We know from talking with employers that there is some investor pressure on them to close final salary schemes as a way of supposedly capping pension costs.

Also, credit rating agencies have already begun to downgrade companies where they have large pension liabilities, although in recent weeks a number of companies have questioned whether the agencies properly understand pension scheme liabilities.

If an employer shuts a pension scheme today it still has to pay the benefits promised by that scheme for decades.

Without question a range of pressures are being brought to bear on employers continuing to offer good final salary schemes.

Short-term concerns

The TUC would of course argue that employers should continue to offer these schemes for their own sake but we are also increasingly concerned that employers are being offered a false solution to pension costs.

Many of the reasons given for shutting final salary schemes are based on short-term concerns.

But pension schemes by their very nature are long-term, and any decisions should be taken from a long-term view.

Given the size of many pension funds these days they are effectively financial super tankers - their costs cannot be turned around quickly.

Costs rising

If an employer shuts a pension scheme today it still has to pay the benefits promised by that scheme for decades.

So shutting a final salary scheme and opening up a money purchase one does not reduce an employers costs in the short term - in fact it might actually put them up.

Put simply there is no short-term solution to rising pension costs.

The best thing that many employers can do in the current environment is ride out the storm of poor investment returns.

But taking a short-term stance on pensions issues can create long-term damage to companies.

Changes to pension schemes are very damaging for staff morale and given much greater employer awareness, could also lead to deteriorating industrial relations.

And it will not satisfy investors either.

The effect of closing a scheme will not impact for years - much longer than most investors' time horizons.

Riding the storm

The best thing that many employers can do in the current environment is ride out the storm of poor investment returns.

Markets will turn up again and when they do final salary schemes will become cheaper again, perhaps cheaper than some of the money purchase schemes currently being established.

Employers should concentrate on other ways of dealing with short-term costs.

For our part trade unionists have demonstrated that we will work with employers to retain just good schemes even if this means there must be substantial moves from employees.

A number of recent deals have seen unions agree to increase member contributions to pension schemes in order to keep a good scheme open.

And in the meantime employers should be wary of siren voices which suggest simplistic short-term solutions that won't deliver for the company, its employees or its investors.