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COMMENT
When it comes to pensions, bosses have been feathering their own nests, while leaving their workers in the lurch, according to union body the Trades Union Congress (TUC). Directors of blue-chip FTSE 100 and other large firms usually have their own ring-fenced pension plans that knock the socks off those given to their employees. Indeed, the TUC calculates that directors at these firms have accrued individual pensions worth an average of £3,200 a week. According to the Pension Service, the full basic State pension is a mere £82 a week, around a fortieth of the fat-cat reward! What's more, the TUC calculates that the combined value of these company directors' pension pots is currently a tidy £900 million. One particular trend in corporate greed is the move towards replacing workers' guaranteed final-salary schemes with cheaper, riskier money-purchase plans. Meanwhile, the directors are sitting pretty, cocooned in what amount to exclusive 'VIP pension clubs'. Even though they enjoy larger salaries, many directors' final-salary pension schemes produce a maximum pension after twenty years' service, compared to the usual forty years for guaranteed staff schemes. It seems to me that bosses' generous salaries, share options and other perks more than adequately compensate them for the work they do. Hence, I believe that every single member of a company should win or lose together in the same pension scheme, with no two-tier set-ups. Had they been in the same boat, many boardroom fat-cats would have thought twice before trashing their employees' schemes! As thing stand, five out of six directors (85%) are in final-salary schemes, compared to fewer than two in five workers (38%). Even where directors are in money-purchase schemes, the average company contribution rate is a fifth (20%) of their salary, compared to a typical rate of 6% for the great unwashed! So, what can you do if it looks as though your pension isn't going to fund much fun in retirement? Essentially, you have three choices: 1. Retire later: more and more firms are allowing workers to work until age seventy, for example; 2. Cut back your spending and adopt a more modest lifestyle; and/or 3. Save more! I don't fancy going down the first route, and I'd like enough money to enjoy a few years of comfort before I pop my clogs! Hence, I took a deep breath, tightened my belt last year and started pouring cash into my company Stakeholder scheme. Indeed, in this tax year (2005/06), I'm paying in the maximum 20% allowed for my age (I'm at the lower end of the 36-45 age range). The good news is that this only costs me 7.5% of my salary, with 5% from the taxman and a further 7.5% coming from the Fool. What's more, my contributions are invested in a cheap index tracker which has produced good returns over the last two years. My wife is fortunate enough to be in a decent final-salary scheme, yet she has made additional voluntary contributions (AVCs, or extra payments) into her scheme. In fact, she's paid in the maximum 15% for the last five years or so, so her extra pension pot is booming! Anyway, the good news is that from 'Pensions A-Day', 6 April 2006, the pensions regime will be simplified, making pensions both easier to understand and far more inviting. Learn more in Get Ready For The Pensions Upheaval! Finally, if you don't like the idea of tying up your money in a pension, then do consider other investment vehicles, such as tax-free ISAs, company share schemes, property, and so on. Don't give in and do nothing, because you'll pay a high price for your inaction further down the line! You can read the TUC's full PensionsWatch report here. More: Visit the Fool's centres for Pensions, Index Trackers and ISAs.