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 last week, 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 increases were going to higher earners; and second, much of the increased productivity was going towards plugging defined benefit pension deficits.
“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).