The long-term problem
The research found that of the approximate 6,000 DB schemes in the PPF Index, most of which are closed, as many as 1,000 schemes are highly vulnerable to the risk of significant underfunding and the sponsor’s insolvency as scheme funding levels continue to weaken. Around 600 schemes – 10% of the total – are unlikely to ‘ever’ pay off their pension scheme debts. The businesses of up to a further 10% are at risk of failure due to the DB deficit. Quantitative Easing (QE), low interest rates, and low gilt yields are all considered to add significantly to the problem, especially as gilt yields are a key factor in the assumptions used for valuations.
- Up to 1,000 of the 6,000 Defined Benefit Pension Schemes are at serious risk of falling into the Pension Protection Fund.
- Of this, members of 600 schemes may only receive PPF compensation; many sponsors are expected to become insolvent in the next five-to-10 years
- The remaining 400 sponsoring employers might initially survive, but may eventually fail if they are not able to off-load their pension obligations
- the report challenges the ‘flawed assumption’ that, in time, the majority of these sponsors will meet their pension promises in ful
- Planned and coordinated action now could secure better outcomes for members than the PPF compensation floor while securing jobs and freeing up businesses to create growth
So, I’m sorry to report that we may all become rather more familiar with the Pension Protection Fund unless action is taken and with so many financial pressures, one can see why it isn’t. Of course, not everyone has a final salary pension scheme and it should be said that many of those in existence are very well funded. However the key lesson in this that applies to everyone is that providing income for a lifetime is expensive, getting your pension income sorted out, in whatever form, is important to address and why you need a good financial plan.
You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email firstname.lastname@example.org