Three million workers with final salary pensions have a 50 per cent chance of losing up to fifth of their income because their employers have made unaffordable promises, a recent report has warned. Could you be one of them?
A growing number of employers who have offered staff so-called “final salary” pension schemes are coming under extreme pressure to meet their obligations, the Pensions and Lifetime Savings Association said.
This is down to a range of factors including people living longer than expected, making guaranteed pensions more expensive to provide.
Companies who find they cannot afford to pay the pensions they have promised staff will have their pension schemes rescued by a lifeboat service called the Pension Protection Fund.
However, workers whose pensions are taken over by the Pension Protection Fund can be up to a fifth lower than what they were originally promised.
Recent high-profile cases of doomed pension schemes, such as the BHS collapse, have highlighted concerns over the future of workplace pensions in the UK, and other developed economies with ever increasing, ageing populations.
The PLSA’s analysis showed the most vulnerable employers have a 50 per cent chance of not having an insolvency event over the next thirty years.
Ashok Gupta of the PLSA, said: “More than 11 million people rely on defined benefit pension schemes for some or all of their retirement income but there is a real possibility that without change we will see more high profile company failures such as BHS or Tata Steel.
It is vital that action is taken to address covenant risk, underfunding and the current lack of scale in the majority of schemes.”
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