So many final salary workplace pensions are in danger of paying reduced benefits that trustees should consider pooling them in a £1.5 trillion superfund, claims a new top level report.
A City taskforce investigating how to make workplace pensions less risky has come up with the controversial idea.
The committee set up by trade body the Pensions and Lifetime Savings Association (PLSA) argues the many of the weakest of the country’s 6,000 direct benefit workplace pensions only have a 50:50 chance of paying even reduced benefits and need protecting before they fail.
The PLSA recommends saving money by pooling their assets to make a £1.5 trillion super fund managing the retirement savings of 16 million members.
The move would improve efficiency and generate better investment yields, says the taskforce report.
£400 billion black hole
Britain’s direct benefit pensions have a £400 billion black hole which companies are struggling to plug.
The government has seen an advance copy of the report, which is said to recommend savings that would add up to £1.2 billion a year.
The savings would come from streamlining administration and pooling assets, but the favoured option is setting up the superfund.
The move is also expected to remove the issue of companies paying cash top-ups into their schemes, which is a popular way forward with employers having to find billions of pounds to cover pension deficits.
Whitehall is believed to support the superfund idea and would prefer to see pension schemes working together rather than a fragmented market.
Government supports ‘sensible move’
“It’s sensible work for the industry to do and it’s long overdue,” a government source told Sky News.
Workers are reportedly fleeing final salary schemes as FTSE 350 companies offer massive pay-offs urging them to move their pensions.
However, leaving a final salary pension can mean handing over irreplaceable retirement benefits.
The pensions come with a guaranteed income for life linked to cost of living rises. The package often includes a pension for a spouse on the retirement saver’s death and even guaranteed annuity rates that are far above the average rates offered on the open market.