Workplace Pensions Underfunded By £2.37 Billion

By Retirement
Workplace Pensions Underfunded By £2.37 Billion

Rocketing pension scheme deficits are a cause for concern for pension savers and retirees alike but more so for trustees who are being put in an uncomfortable position in underfunded workplace schemes.

Many retirement savers are turning towards self-managed schemes to make the most of their contributions.

While expat workers can put their pension pots outside the reach of the government’s pensions tinkering by opting for a Qualifying Recognised Overseas Pensions Schemes (QROPS).

The issue has come to a head after news that 6,316 pension schemes in the UK are now in deficit to the tune of £2,377 billion.

The deficit is calculated by estimating the cost of paying current and future pension liabilities.

Most of these are in the private sector and are final salary schemes closed to new employees.

Restricted benefits

The deficit figures were provided by the Pension Protection Fund (PPF) which says the figure has risen from £201 billion last month, although that’s not as high as the May 2012 peak of £317 billion.

One explanation for the jump is that companies assess their financial obligations at the time of year.

Adam Boyes, a consultant with financial services firm Towers Watson, says this is the worst time for deficits to be so large since this is when the trustees of a pension scheme agree with an employer how they will tackle the issue.

Most employers have not only closed their schemes but are looking at ways of restricting benefits to their existing members too.

Among those watching issues surrounding pension deficits are the pensioners of Trinity Mirror.

Trinity Mirror pension woes

Their deficit has now reached nearly £300 million, following the decision to repay American bondholders £70 million, which the trustees felt compelled to do to help the struggling business.

Trinity Mirror is so hard-up that the pensions regulator has agreed they can put just £10 million a year into the final salary scheme for the next two years after which their contributions will rise to the normal rate of £33 million.

The pension fund’s trustees explained that they felt obliged to help the business and allowing them to cut contributions to avoid being responsible for the business going bust – and jeopardising future pension pay outs to former employees.

The Trinity Mirror situation is not unique and it’s worrying for many people because the firm as pension liabilities of £1.8 billion which dwarfs the company’s market value of just £239 million.

Melanie Duffield, head of research at the National Association of Pension Funds, said: “Because of low gilt yields we are seeing a rise in pension deficits which in turn is putting final-salary pension schemes under real pressure.”

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