It was the condescension that jumped off the page. When Newsquest, the second-largest local newspaper publisher in Britain, wrote to its employees in early August announcing the closure of its final salary pension scheme, the justifications were vague and the FAQs superficial.
The cost of running Newsquest’s pension scheme, employees were told, had become ‘extremely high’and was no longer ‘sustainable”.
Perhaps it was a sense of irony that led Paul Davidson, the chief executive of Newsquest, to refer to ‘press articles over the past few years’that have chronicled the demise of similar schemes. Or was it simply arrogance?
Davidson, who never answers calls from journalists, went on to claim (‘with deep regret”) that Newsquest, a subsidiary of Gannett that employs 5,000 staff in the UK, was now ‘in a similar position”.
His letter was infected by the glib Orwellian language of retail marketing. Employees leaving the company’s final salary pension scheme were encouraged to anticipate the delights of Smart Pay Adjustment and Default Lifestyle Adjustment Funds.
Pensions are complicated things. Yet in a document stretching to 13 pages, like the one sent to Newsquest employees on 13th August, you might have expected a concerted effort to explain why change was inevitable.
Newsquest failed to do this. Neither the document nor the accompanying letters contained very much hard financial detail. In particular, they contained zero explanation of how Newsquest’s pension fund had generated a deficit of £123m.
Six months later, Newsquest has now confirmed that it will close its pension fund. The public silence from the company’s corporate HQ continues. The National Union of Journalists has conducted negotiations behind the scenes. Newsquest’s approach to these appears to have been desultory. The union has been denied access to the draft valuation of the pension fund, which details the £123m deficit. That valuation will be published next year, by which time Newsquest’s final salary pension scheme will be long gone.
What seems to have defeated the company is the deterioration in the deficit of roughly £80m that has occurred since 2008. Two years ago, the company and trustees happily agreed a plan to eliminate a deficit that amounted to £42m at the time.
How significant is £80m for Gannett, the US newspaper company that owns Newsquest? It might help if we place the number in context. In 2007, according to annual accounts filed at Companies House, Gannett UK Ltd, the holding company that owns Newsquest, generated operating profits of £185m. During the following year, even as recession started to bite, operating profits amounted to £129m. During these pre-bust years, the company’s operating margins didn’t fall below 25%, and frequently ran as high as 30%.
If Newsquest remains such a highly-profitable company, why couldn’t some of its profits be diverted to plugging the hole in its pension fund? In the US, companies often attempt to ‘cure’pension deficits over a seven-year period. If Newsquest had taken on the burden of doing this in the UK, it would have cost the company a maximum of £11.5m a year.
You might reply that it’s simplistic to ask highly profitable companies like Newsquest to protect their employees’ pension rights. Perhaps, therefore, we need to ask how the funds available to the trustees have been managed in recent years.
In late 2007, on the eve of recession, The Newsquest Pension Fund had over £400m invested in shares, bonds, property and cash accounts. Between 2008 and 2010, a fund of this size could easily have lost £80m of its value. It certainly didn’t help that the trustees went into recession with 15% of their assets invested in high-risk hedge funds and 20% in property.
Yet much of the value lost during The Great Crash will one day return. Almost certainly, it will do so before 50-year-old employees retire. Share prices will not stay at their current, relatively depressed levels forever.
On this basis, how ‘unsustainable’is Newsquest’s pension fund in the long term? Given rising asset valuations and a corporate willingness to contribute, could its deficit have become sustainable again at some point in the future?
This, too, is a very obvious question that which remains unanswered, like several others about Newsquest’s pension scheme. Dominic Ponsford lined up these other outstanding queries back in August. These questions, too, remain unanswered:
- Why is the employer pension contribution offered by Newsquest’s new scheme going to be less than that offered by Trinity Mirror and Johnston Press, which have both already closed their final salary pension funds?
- Is Newsquest’s parent company Gannett taking similar action to curb the retirement payouts of employees on its US titles? Is Gannett similarly secretive about its US pension arrangements? If not, why is its UK subsidiary so frightened of justifying its position?
- Will Paul Davidson’s own company pension contributions be affected by the move?
So far, Newsquest has utterly failed to make a convincing case for closing its pension fund. At his offices in suburban Surrey, Paul Davidson continues to ignore phone calls from journalists, like ourselves, who remain curious about his proposals.
All that remains visible is unalloyed corporate arrogance. The scale of that arrogance became breathtakingly clear in the final par of Paul Davidson’s letter to staff this summer, which contained the time-honoured suggestion that ‘we cannot ignore the business environment”.
Oddly, this seems to be precisely what Gannett has done when it comes to Paul Davidson’s own salary, which increased by 21.5% in real terms to £609,385 last year. More pointedly, the pension contributions made by the company on Davidson’s behalf rose from £38,536 to £94,986.
Glib words about the business environment are merely an assertion designed to induce submission. Allied to hypocrisy, they represent an insult to hard-working employees who have lived with pay freezes for the past three years.
The NUJ’s position — voiced today by local organizer Chris Morley — is that the company could have found a way ‘to retain the best elements of a defined benefit pension scheme”. Newsquest, he adds, is ‘a profitable company that can afford to do much better”.
During negotiations in recent months, which remain cloaked in legal secrecy, the NUJ says it has asked ‘detailed and challenging questions’about the closure of Newsquest’s pension plan. The responses lead Morley to suggest that the company is simply ‘hell-bent on swinging the axe”.
That much has been clear all along. Indeed, the root problem in all of this is larger than Newsquest’s failure to properly explain its decision. The real scandal is the fraudulent state of British pensions law, which allows highly profitable companies like Newsquest to make damaging decisions about the long-term welfare of poorly-paid employees in the knowledge that they will never be held to account.