News that the BT pension fund has an enormous £10.6 billion black hole and that other private company retirement funds are in crisis has followed hot on the heels of the government wanting to change pension rules for the steel industry.
The deficit between assets and future pension liabilities at the firm has soared by 50% in 18 months, according to analysts Macquarie.
To fill the gap, the company would have to pay in £1 billion a year until 2030 in a move that is likely to see dividends to shareholders slashed.
The data was revealed as the government published a consultation paper detailing the options for the British Steel Pension Scheme. The company and pension are now controlled by Tata Steel. The owners argue that a huge pension deficit is weighing against the chances of finding a buyer for the troubled business.
The government is suggesting changes to pension rules to save jobs.
Sucking profits
But the steel pension has 130,000 members who may have to accept reduced benefits to allow a change to go through. The pension deficit is estimated at around £770 million.
Close to 85,000 members are in retirement, while the rest are working for the company or have moved on but yet to reach retirement age.
In the background, a row is still going on between MPs and former BHS boss Sir Philip Green.
BHS went into administration in April with a £571 million pension deficit.
For investors, pension deficits are a big worry because they are sucking up profits at many of Britain’s largest businesses. This leads to a financial strain on the business and cuts in dividend payments.
Pensions under threat
For retirement savers, the concern is the pension they thought they would receive is likely to pay less, leaving them short of the cash they were promised in return for contributing to the scheme.
Even worse, these are gold-plated final salary pensions that offer benefits that are probably irreplaceable if transferred into a private pension that offers a retirement income based on the performance of underlying investment.
Expats might want to consider transferring their under-threat pensions into a Qualifying Recognised Overseas Pension Scheme (QROPS) if the projected benefits match up with those of a workplace pension offering reduced retirement incomes.
At worst, these reduced benefits are 10% less than the scheme promised if they have to go into the government’s Pension Protection Fund lifeboat.
