The Pensions Regulator is about to take an unprecedented course of action later this week. They will financially support about 350 companies currently struggling to fund and support the final salary schemes of their employees.
Many providers of Defined Benefit, or Final Salary, schemes are looking at big deficits at the moment, caused both by the economic downturn of the last few years and the governments Quantitative Easing (QE) programmes. The move is meant to help make sure the companies can pay their employees the pension they have the right to and not go bankrupt, with hundreds of thousand workers across the UK having defined benefit schemes with gaping deficits.
Estimated £255 Billion In Deficits
Many fear that without this recently announced effort to look after the security of pensions, many company pension providers would fail to live up to their promises.
As it is today, the deficits in the defined benefits pension systems across the UK is estimated at more than £250 billion. As a response, many have closed the doors of their final salary schemes, while some companies have even closed schemes to existing members. Companies are now favouring defined contribution schemes, which invest money in the market and only pay based on how the investments performed. One example of this type of scheme is the stakeholder pension, offered by Virgin Money and other providers.
Everyone from employees, employers and providers are becoming increasingly alarmed and worried about the state of the economy and what it means for pension programmes, with a lot of the blame falling on the government’s Quantitative Easing programmes. Pension fund liabilities have increased by a third compared to just one year ago.
Creating Breathing Space
But the point of this assistance of the schemes by the Pensions Regulator is not meant to solve the problem, but to give some breathing room to those with the worst looking prospects right now, so they can do something about it before they collapse. While precisely who gets any money is yet to be disclosed, about 1,700 of a total of almost 7,000 schemes will have to present the Pensions Regulator with detailed ‘recovery plans’, of how they plan to combat the deficits in
Out of those, about 20% are thought to have to immediately reduce their deficit recovery payments. The chief executive of the Pensions Regulator, Bill Galvin, commented that they will soon release their first annual statement on the subject, to help employers and trustees better understand the situation and be able to agree on measures to be taken to reduce further deficits.
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