Pressure is mounting on the UK Government to oversee an overhaul of Britain’s company pension schemes in which more than 11million workers have savings. It comes as these “final salary” occupational schemes are registering their biggest ever funding shortfall, now at almost £1 trillion. This sum is the gap between the investments these pension schemes own and the likely eventual cost of the pensions they have already promised to pay. Unless solutions are found, experts warn, many hundreds of schemes are likely to fold into the Pension Protection Fund (PPF), the lifeboat scheme which provides reduced pension payouts for retired workers caught up in cash-strapped schemes.
As a result, savers may be required to give up some of their benefits in a compromise deal. For example, firms could promise to pay them more than they might obtain through a PPF rescue – but less than they are entitled to in their pension contract. While few workers contribute to them today, millions have entitlements built up in the past, when the arrangements were very common. There are 6,000 such schemes, attached to all types of business. Currently a staggering 5,000 of them are in deficit.
For those that have contributed to occupational pensions in the past but are not yet receiving their pension, it is clear that action must be taken. At the very least, a review of your benefit entitlement and the solvency of the scheme must be assessed. If 5 out of every 6 schemes are currently in deficit then the future looks very gloomy. Even if you are one of the lucky ones (1 in every 6) whose scheme is not currently in deficit, can you take the risk that the scheme will be in a position to pay out your expected pension every month for the next 20, 30 years ? Pension transfer advice requires you to seek qualified, expert advice and we can assist with these critical decisions in association with our affiliates in the UK.
If such advice suggests that you should opt out of the scheme then you can instead take full control over your future pension provision by transferring your pension to either a Self Invested Personal Pension (SIPP) or a Qualified Recognised Overseas Personal Pension Scheme (QROPS). Which one is best suited to you would require specific advice based on your personal circumstances and again requires expert advice. Many schemes (including those in deficit) are currently paying out enhanced transfer values. They are doing so as they are desperate to remove the risk of having to pay out pensions in the future that they simply cannot afford to do so. Life expectancy is increasing year on year which is good news in general of course but very bad news for the pension schemes as they are having to pay pensions for longer – something that they cannot afford to do.
In summary, if you have not yet reached retirement age and have contributed to some form of occupational pension scheme, or even personal pension then the worrying statistics of pension shortfalls should jolt you into reviewing what it means to you. What is clear is that fewer and fewer schemes will be providing you with the pension that you were expecting when you finished working ! The good news is that there is a solution and we are able to help.