The retirement plans of millions of workers are at risk from billions of pounds of underfunding in employer pension schemes.
The numbers are big – around two-thirds of all employer pensions have a huge gap between the money they are committed to pay retired workers and the amount they invested to make the payments.
At the end of last year, 3,710 schemes were in the red to the tune of £210 billion, says the government’s Pension Protection Fund, the agency that picks up the pieces for retirement savers if a company goes bust.
The PPF manages 5,588 pension funds with a total deficit of £104 billion.
More companies will go under
Although the PPF shores up pension schemes, workers will only receive 90% of the expected retirement income if their company is swallowed by the fund. Payments are also capped for high earners to around £35,000 a year.
Construction and outsourcing company Carillion is the latest to go into liquidation, with an estimated £584 million pension black hole.
Former pensions minister Sir Steve Webb feels Carillion will not be the last company to go under with a huge pension deficit.
Webb, director of policy at financial group Royal London, said: “The question isn’t if there will be another Carillion – it’s when.
Put pensions ahead of dividends
“With two-thirds of schemes in deficit it is inevitable there will be more insolvencies and more schemes ending up in the PPF. When firms are doing well they should do more to deal with the holes in their pension funds.
“Instead of prioritising dividend payments they should prioritise pension funds.”
Pension consultancy JLT Employee Benefits points out that FTSE100 companies paid dividends worth £71.2 billion in 2017 – and 41 firms could have paid off their deficits by cancelling dividends for shareholders in the year.
JLT director Charles Cowling said: “It is sad to see that we are now witnessing the final demise of direct benefit pension schemes in the UK – at least in the private sector. They have simply become too expensive as an employee benefit.”
Biggest FTSE100 pension black holes
|Company||Pension deficit (billions)|
|Royal Dutch Shell||£6.9|