October 26, 2016

Will YOU miss out on gold-plated final salary pension? Funds ‘to be AXED by next year’

MILLIONS of workers are to miss out on gold-plated final salary pensions with almost every fund set for the axe by next year, experts have warned.

In what pension analysts are calling “the end of an era”, every single one of the defined benefit (DB) schemes offered by the country’s top companies face being shut down.

Faced with a £81bn black hole between what the pensions are worth and what needs to be paid out, many scheme managers will have no choice but to shut them.

Difficult economic conditions, rising pension costs and increasingly aggressive pension regulations are making it more and more difficult for to keep the DB schemes open, according to the experts.

While changes in economic conditions and increasing life expectancy have also contributed to the spiralling growth in pension liabilities.

And attempts by many companies to stem the growth of their pension liabilities by closing DB pension schemes to new entrants and/or to all members have had little impact.

Commenting on the analysis of the FTSE top 250 businesses Steve Wilkie, managing director of retirement specialists Responsible Life, described the closures as the “end of an era”.

He said: “This will be a shock for many who have grown up in the golden age of guaranteed pensions based on their years of service.

“With a personal pension, one of the defined contribution types, there is a much greater responsibility on the individual to save.

“Future generations will no longer have the safety net of final salary pensions, and will feel far more exposed to the vagaries of the stock market.

“The sooner you start saving the better, because your pensions will be dependent on the value of your investments not on your salary.

“And short term investments can be hit heavily by stock market volatility, as we’ve seen since the start of the year.”

James Baxter, of final salary pension specialist advisers Tideway Investment Partners, said: “The cost of producing a guaranteed income for life whether via an insurance company annuity or a defined pension scheme has rocketed at a time when returns on pension fund investments has declined.

“So it should be no surprise that more companies are closing their schemes, liabilities are rising and deficits are rising.

“The situation among FTSE 100 and 250 companies will look a lot worse than this in 2016 in our opinion.”

JLT Employee Benefits found total disclosed pension liabilities of FTSE 250 companies soared to a high of £81bn, as at 30 June 2015, up from £75bn a year earlier.

A total of 26 companies have disclosed pension liabilities of more than £1bn, the largest of which is FirstGroup with disclosed pension liabilities of £4.91bn.

In the last 12 months, 155 companies have disclosed pension liabilities of less than £100 million.

Only 49 FTSE 250 companies are still providing more than a handful of current employees with DB benefits. Of these, only 11 companies are still providing DB benefits to a significant number of employees.

Only 28 companies, including Tullett Prebon, Henderson and Ladbrokes, disclosed a pension surplus in their most recent annual report and accounts.

Charles Cowling, director at JLT Employee Benefits, said: “The ongoing spend and service costs on DB pensions before any allowance for deficit spending is a burden that many boardrooms would like to remove altogether. The impact on corporate decision-making for those companies with significant pension schemes liabilities should not be underestimated.

“With spiralling liabilities and yet more adverse regulations coming into effect from April, such as new tax rules and the end of contracting-out, we believe that the majority of FTSE 250 companies will cease DB pension provision to all employees within 12 months.”

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