Twelve months to save final salary
schemes, says pensions minister
The Guardian (London)
By Hilary Obsborne
May 15, 2013
There may only be a year to save company pension schemes that offer a guaranteed payout to savers, the pensions minister, Steve Webb, has warned.
Defined benefit (DB) pensions, also known as final salary schemes, have been under pressure in recent years as a combination of increased life expectancy and low gilt yields have made it increasingly expensive to provide the retirement incomes promised to members. [EXPAND Read more]
Research by the Pensions Protection Fund showed that by the end of April 5,142 of the UK’s 6,316 private sector schemes were in deficit, with the total shortfall between liabilities and assets adding up to £257bn.
Speaking to the pensions industry, Webb said: “We’ve probably got 12 months to save DB. It could be that, like on an episode of Casualty, there is no point trying to apply electrodes to the corpse, but it is possible that we can save a version of DB.”
The minister believes the next year offers a critical opportunity to talk to companies about what they are offering their workers, as the programme to automatically enroll workers into pensions is rolled out and the introduction of a flat-rate state pension approaches.
There are signs that many companies opting to close DB schemes are opting to introduce “defined contribution” schemes, where the members’ payouts are based on the performance of the investments and the annuity they buy with their fund on retirement.
Instead, Webb wants to see more “defined ambition” schemes, which offer a middle ground with more secure payouts than a DC scheme, but sees employees take on some of the risk.
But there are reports that many in the industry think that it is futile to attempt to get companies to sign up to a halfway house.
Tom McPhail, head of pensions research at IFAs Hargreaves Lansdown, said: “The world has changed from the traditional paternalistic model of a job for life, with a final salary pension thrown in at the end.
“This is not to say that employers don’t want their staff to have good pensions, it’s just that they don’t want to underwrite open-ended guarantees for their employees. The future lies in employers giving good levels of pension contributions and making sure that they do all they can to help their employees deal with their own retirement planning needs.”
On Tuesday, pensions experts warned that final salary schemes may only have three years left to run and two firms recently announced plans to close their schemes to existing members. The exodus looks set to continue after the flat-rate state pension is introduced in 2016, a move which will add to the cost of offering current benefits. [/EXPAND]