How much does your employer value you if your pension scheme is millions in the red but the directors are still splashing the cash on shareholders?
A recent survey claims Britain’s largest companies spent five times as much on dividends as pensions in the last year.
Actuaries Lane Clark & Peacock reported that FTSE100 companies paid £53 billion to shareholders while pension schemes had a £42.3 billion deficit.
Boards of directors have a choice with what to do with money paid as dividends.
The cash is surplus earnings that can go back into the business as investment for growth, cash to pay off debts or paid as a reward to investors for showing faith in the company.
Shareholders favoured over employees
Some or all of that £53 billion could have clashed the pension black hole the companies are facing.
For employees, the question is with pension liabilities pulling down corporate growth, should they stick with the company scheme or switch to a self-controlled SIPP or Qualifying Recognised Overseas Pension Scheme (QROPS).
With pension promises in doubt and shareholders preferred to employees, now’s the time for many retirement savers in workplace schemes to make a decision.
For UK residents, a DIY SIPP pension is an option to consider.
For expats no longer tax resident in the UK, a QROPS offers many of the same advantages as a SIPP but with some supercharged benefits.
What SIPP and QROPS pensions can offer
Lane Clark & Peacock point out that companies are paying more into their pensions than ever, but failing to make a dent on growing liabilities.
The firm’s senior partner Bob Scott said: “The BHS collapse and potential sale of Tata Steel UK, both with underfunded pension schemes, have highlighted the significance of pension liabilities and the impact that a large defined benefit scheme can have on a UK company.
“Companies with large deficits may see pressure from the regulators on their dividend policy in light of MPs investigating BHS.”
BHS has gone into pension protection with the government, reducing benefits for thousands of workers by 10% and capping the amount a 55-year-old can take from a pension each year to £28,414 (32,367 a month).
Switching to a QROPS or SIPP may involve losing some benefits, such as a 50% spouse pension and guaranteed pension payment, but these are smoothed by QROPS offering higher tax-free lump sums and gifting 100% of unpaid pension funds to loved ones.