Cautionary tale
Page 39
If you've noticed an error in this article please click here to report it so we can fix it.
At the risk of adding to gloom arid despondency unnecessarily I cannot resist quoting from a recent article on pensions in Professional Administration, the journal of Chartered Secre taries and Administrators so it should be an objective source.
"Suppose a young man joins a company at the present time in his early twenties at an annual salary of £2,000 and he remains in service until retirement after 40 years, making no progress at all but receiving salary increases sufficient to preserve the purchasing power of his salary. Suppose further that he then retires on a pension of two-thirds of his salary at that time and lives for a further 20 years, his pension also being increased meanwhile to preserve its purchasing power.
"If inflation persists at a rate of 10 per cent per annum, his salary when he retires will be nearly £100,000 and his annual pension after 20 years will be nearly EIA million. If inflation is at 15 per cent per annum, his annual salary at retirement will be over VA million and his annual pension after 20 years will be over £5 million. If inflation is at 20 per cent per annum, his annual salary at retirement will be nearly £3 million and his annual pension after 20 years will be over £75 million."
The serious point behind these mind-boggling figures is that companies setting aside, say, 10 per cent of their payrolls to meet pensions needs are merely trifling with the problem. In France, employers are coming to grips with the pensions nightmare by meeting pensions as they become due from current revenues, instead of from a fund insulated from the employer. This cuts down investment funds of insurance companies and the like but employers can use the money saved for investment in their own firms. Much simpler to have done with inflation...