Final Salary Pension Scheme – Is Yours Safe?
Yet again in the news headlines there are details of a large company collapsing, in this case Carillion and news that the company pension scheme is being placed into the Pension Protection Fund (PPF).
Each time this happens we hear the politicians say that lessons will be learned, rules will be changed, pensioners and pensions will be protected but nothing changes.
If a Final salary scheme company goes bust and is placed in the PPF it means Members who have reached their scheme’s normal pension age will generally receive the same amount in compensation as the pension they were receiving from their scheme at the time their employer went bust.
Those members who have not yet retired will receive up to 90 per cent compensation on reaching the normal pension age of their scheme. Members who have retired but have not reached their normal pension age will also receive up to 90 per cent compensation. A higher cap may apply if you were a member of your pension scheme for 21 years or more or due to receive over 30,000 per year as a pension.
Once your pension has been placed in the PPF you have no flexibility in terms of the option to move your pension, to put it bluntly you are stuck whether you like it or not in this scheme until you die.
The total deficit in just the FTSE 100 pension schemes at 31 March 2017 is estimated to be £56 billion. This is a deterioration of £9 billion from the position 12 months ago.
There are a significant number of FTSE 100 companies where the pension scheme represents a material risk to the business. 11 FTSE 100 companies have total disclosed pension liabilities greater than their equity market value. For International Airlines Group, BT and Sainsbury total disclosed pension liabilities are around double their equity market value.
Only 26 companies disclosed a pension surplus in their most recent annual report and accounts; 63 companies disclosed pension deficits.
In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have risen from £584 billion to £705 billion.
So if you have a final salary pension scheme and you haven’t yet taken retirement, don’t just bury your head in the sand and think everything will be OK in the end, you need to find out if your pension scheme is in deficit, and if it is by how much and what plans are in place to reduce and ultimately to clear the deficit. If this seems unrealistic and/or the Company itself is on rocky ground then it’s time to get your money out.
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The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.
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