01 November 2016 by Alexandra Jones
Companies must help employees toward a future of financial independence
In recent months, debate has centred around pensions, in particular the potential financial time bomb ticking away on many companies’ balance sheets. Worrying statistics have emerged, as John Stittle explains in his article, 'The demise of company pensions': ‘At the end of last year, a leading pension report suggested that around 1,000 private sector company schemes are unlikely to be able to meet their members’ entitlement.’
John raises an interesting point when he states that ‘many companies are perhaps unduly prioritising the interests of their shareholders ahead of their employees’ pension provision’. This, in turn, raises the issue of the prioritisation of directors’ duties.
Directors have a duty under the Companies Act to make decisions for the benefit of the members of the company as a whole, yet they must also have regard to the likely consequences of any decision in the long term and the interests of the company’s employees, of which the financial stability of pension schemes could be argued to be a key component.
Very few companies now offer a defined benefit scheme because they recognise the inherent challenges from the financial commitment, heavy taxation and regulatory involvement.
As a pension crisis potentially looms for those currently in employment, perhaps it is time to re-evaluate the prioritisation of directors’ duties or indeed for the Government to consider ways in which it can help organisations and people safeguard their financial future – this is especially relevant as individuals are increasingly expected to manage their own pension provisions.
In our interview this month, Gemma Godfrey talks about the importance of empowering the public with the knowledge and tools to take charge of their own financial well-being (see the full interview, 'Empower the public'). Companies can help their employees to improve their financial position and, combined with a more stable pension system, allow them a future of financial independence – rather than the worrying spectre of state-dependency which faces many of the current working population.