Warning: Final Salary Schemes’ Deficit Grows

In March this year I wrote an article in BCCJ ACUMEN (“UK Firm Pensions: Is the End Nigh?”) in which I spoke about the problems facing UK corporate pension schemes and what individuals could do to protect their pension.

Situation update
Things haven’t got any better. The combined deficit of UK pension funds increased £20bn in April, to hit £256.6bn!

To put this in context, it’s the same amount as the GDP of Thailand or South Africa!

Pension experts are predicting that final salary pension schemes could be consigned to the history books, not in decades, but in just three years, as schemes close the doors to new members.

● Low gilt yield (UK government bond interest)
● Poor performance
● Members not contributing enough
● Higher life expectancy

The Pension Protection Fund (PPF), the government’s private enterprise safety net (not funded or guaranteed by the government) for members of final salary schemes, has stated there are over 5,142 schemes in deficit—representing 81.4% of all UK pension schemes.

The average deficit in funding for clients with UK schemes that I have met here in Japan is 33%. That’s scary.

What could force a scheme into the PPF?
A firm becoming insolvent, or pension fund trustees that just can’t handle the deficit. However, there have been recent cases of firms pushing away their pension fund liabilities.

A recent example of this is when UK Coal went into administration, and their 7,000-member pension pot went into the PPF. This is because the group responsible for repairing the pension deficit, of at least £450mn, sank into a long-anticipated administration.

This means that the guaranteed pension members were expecting will be drastically reduced by up to 50% in some instances.

Some schemes that are on my watch list have huge liabilities:
1. BT Group plc, British Airways and BAE Systems plc (the old privatised industry)
2. The National Health Service and any civil service pension
3. The Royal Bank of Scotland plc
4. Barclays plc
5. Royal Dutch Shell plc

What should you do?
If you have a frozen defined benefit (DB) pension plan or final salary scheme, there has never been a better time to transfer into a Qualified Recognised Overseas Pension Scheme (QROPS).

Why? Transfer values are 80% higher today than they were six years ago.

Sit down and review your current situation, including the pension itself and the scheme.

In my position as area manager of the deVere Group Japan, I have seen an increase in individuals who are fearful of the current UK pension crisis—with good reason.

However, there is an unprecedented window of opportunity available to eligible DB scheme members today that may not be there tomorrow.

Due to the complex and convoluted nature of pensions and pension transfers, the deVere Group has established a specialist pensions division and commissioned independent actuaries to review and report on the status of pension schemes for interested individuals.

This is a simple step to initiate, with no obligation to act on the results of the review that, in many cases, has already preserved and protected significant transfer amounts, converting a future promise into a real investment today for the benefit of the scheme member, spouse, children, and children’s children.

For further information, please email tony.evans@devere-group.com. Check for updates on my blog (www.tony-evans.com)