Erikka Askeland: Too many in UK stick their heads in sand over pensions

OH goody, a "summer of discontent" awaits us as public-sector unions stir up anger among members faced with the prospect of paying more for their pensions.

Next week, Scottish university lecturers are the first lot set to strike as they fight to maintain their final-salary pensions.

Except this is different from the Armageddon that was predicted following publication of the Hutton report, which addressed ways of tackling the largely unfunded public-sector pension gap.

The university lecturers' USS pension is actually a well-funded, occupational scheme - except the universities are attempting to change the benefits of the scheme in an effort to cut future costs, merely taking up some of the same themes that Lord Hutton has addressed.

As public-sector workers in general are forced to pay more for a worse deal, unions are warning that people will choose to opt out in droves. But if they do they are effectively cutting off their noses to spite their faces. Because, while it may seem like a bum deal now, surely it is much better than the prospect of facing poverty in old age?

Much of this attitude stems from a complete lack of awareness about how much a comfortable old age costs. It is the sort of subject that tends to make people in the UK want to put fingers in ears and shout "la, la, la" with their eyes screwed up tight.

Unlike countries such as Australia, the UK has resisted the notion of widespread mandatory pension contributions, an unpopular option seen by many as just another tax and a sneaky way for the state to duck out of its obligations to pensioners. But mandatory pensions can often be an effective tool to educate people, too.

At a lunch hosted by Invesco Perpetual, as part of the National Association of Pension Funds' annual beano in Edinburgh this week, there was talk about how people in the UK remain clueless relative to other countries, where even the mothers of some of the attendees knew how to invest in securities.

Lack of awareness means the UK pensions gap - among both the private and the public sector - is the largest in Europe.

Widespread reporting of Hutton's report threw up some interesting statistics. Only 11 per cent of private-sector workers are in final-salary schemes today, but 94 per cent of public-sectors workers are members. And even though mandatory employer schemes are due in 2012, currently over 50 per cent of private-sector workers don't have any employer-sponsored pension scheme at all.

Yet sometimes the doom and gloom about pensions can be overdone. Look at the emporia of the middle classes, John Lewis. This week the headlines were dominated by the 195 million bonus that the firm's employees are sharing out after another bumper year.But what didn't get reported so much is John Lewis insisting it would stick with its final-salary pension scheme, something so rare in the private sector now it makes hens' teeth look like the sort of stuff you could use to pave roads. Not only this, but the retailer's pension fund finished the year with a surplus of 83m.

A private-sector final-salary pension fund? In surplus? Now it seems businesses are more often described as a pension fund liability with a company attached.

Scottish textiles firm Dawson International could be described this way. It is what its chairman, David Bolton, described as a legacy company, which has more pensioners to support than it has employees. It is also a much smaller business now than in its heyday. The firm has been negotiating with the pension trustees to reduce some of its costs.

But this is just one example of the dangers some companies face - where its pension obligations actually put the firm at risk of failing, leaving both the current staff and its pensioners high and dry.

In fact it is not unlike the UK's current situation in the public sector, where the number of workers supporting each pensioner is declining.

But the secret to John Lewis's great luck is that, due to the fact it is owned by the employees, its management and its shareholders' interest are completely aligned.

And you can bet that most staff know that it is worth ensuring their pension stays well topped up even if it is at the expense of a salary increase.