Generous final salary pension schemes are directing money away from younger workers, resulting in stagnant wages and general disenchantment with globalisation that led so many people to vote to leave the EU, former Tory minister David Willetts has said.
Speaking at Nest Insights pensions conference on Tuesday (28 June), the former shadow minister for work and pensions said the gap between productivity growth and median pay was growing.
He said: “We may have worries about productivity in this country, but even more worrying is that growth in median pay has fallen even further behind growth of productivity per head.”
Lord Willetts, who left parliament before the 2015 election and is now executive chair of the Resolution Foundation, said two main factors explained this discrepancy: first, pay increasses were going to higher earners; and second, much of the increased productivity was going towards plugging defined benefit pension deficits.
“When it’s company wide schemes ... the benefits will by and large belong to retired members of staff or older members of staff who are still working.
“If the company has got a pensions deficit and the revenues being generated by employees are being used to help plug that deficit, then younger workers are busy working to earn revenues to put into a pension scheme to plug its deficit when that pension scheme is not even open to them.”
He said this intergenerational injustice helped explain why 51.9 per cent of voters took the anti-establishment step of voting to leave the European Union on Thursday (23 June).
“Dare I say it, if you want to know why there are 52 per cent of people out there who don’t think globalisation has done anything for them, and who don’t see what’s in it for them, when you look at those type of statistics and see those type of effects, you can understand why they are disconnected and angry, however misplaced their views might be.”
He said it was younger people in particular who were the victims of pension injustice, and the same intergenerational injustice existed in housing as in pensions.
“If we’re living in a society where the two main forms of personal wealth that we acquire are a pension scheme and a house, neither are any longer easily available for younger people.”
However, he said auto-enrolment would “address some of these trends”. He did not say whether he supported reducing the benefits for struggling DB schemes - a question which will be the subject of an inquiry by the Work and Pensions select committee.