Hundreds of companies want to break their pension pledges to workers by offering them less retirement cash.
Britain’s leading businesses claim they are at risk of going to the wall if they must keep to promises to fund generous final salary pensions.
They argue that the pensions are draining cash from their businesses and that promises made when finances were good are now too demanding and rigid to maintain.
The plea comes from the Pension and Lifetime Savings Association (PLSA), a trade body representing around 1,300 direct benefit pension schemes run by firms such as BT, British Airways and Tesco.
A final salary pension guarantees a lifetime pension payment on retirement based on the worker’s final salary and time served with an employer.
Significant risks
The pensions are index-linked generally to the retail price index (RPI), which returns a higher rate of inflation than the consumer price index (CPI), which is the cost of living measure applied to the state pension and public sector retirement funds.
The PLSA says that although companies are liable to pay £81 billion a year to keep their pension promises, they are only paying in £31 billion, of which £11 billion goes straight to plugging deficits.
Ashok Gupta, chair of the PLSA’s Direct Benefit Task Force said: “The current state of direct benefit pensions poses a significant risk to members’ benefits for all but the most strongly funded schemes.
“That money could have been spent elsewhere in their business, for example on wages, business investment, dividends or on pension contributions to employees in defined contribution schemes.”
The PLSA task force report highlights that almost 11 million workers belong to final salary workplace pensions, with 4.27 million receiving payments.
Fears for millions of pensions
That suggests around 6.75 million workers have pensions at risk in workplace schemes.
Expats who have not drawn down final salary pension benefits can look at transferring their funds to a Qualifying Recognised Overseas Pension Scheme (QROPS) to take control of their money, while UK residents can consider moving their pension cash to a SIPP pension.
Making the move will mean losing the guarantees of a final salary pension and any cost of living rises, but if the scheme closes and goes into protection, this must be tempered with a 10% cut in benefits and an age-related cap on annual payments regardless of the size of any fund.
Companies are arguing that if the pension goes into protection and retirement savers agree to lose some benefits, why can’t pension liabilities be cut by that amount anyway to help them tackle funding expensive final salary schemes.
Further QROPS Information and Guidance
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
