According to figures released by the Pension Protection Fund (PPF) the collective shortfall in company pension schemes increased to a record £312.1bn last month. This marked the highest deficit in final salary pension schemes since records began in 2003 the. In its monthly update the PPF said that only 929 of the 6,432 schemes that it monitors had more than enough funds to meet its long-term obligations.
The funding ratio, which records assets as a percentage of liabilities, stands at a rather worrying 77%, compared with 98% a year ago. This will put many schemes under a great deal of pressure as many employers will have to decide between shoring up a pension scheme and investing into their business.
The PPF which was established to pay compensation in case of insolvency or insufficient assets in company pension schemes said that a reduction in the yield of government bonds which are used to calculate liabilities was behind the figures.
If you are a member of a final salary (defined benefit) UK pension fund this is a good time to review the scheme and see it if is in your interest to transfer to an arrangement under your control, particularly as many schemes are keen for members to leave and are offering enhanced transfer values. I believe that we can expect to see many for occupational pension schemes being wound up. Whilst the PPF will assist members of failed schemes, provided the scheme is a member, it does not provide a guarantee of fully replacing a pension income and may limit the benefits available.
Please do not hesitate to contact me of you would like to discuss the options in relation to a UK pension plan.