UK firms contribute £35bn to reduce their pensions bill but deficits keeps rising .

UK firms contributed over £35bn to their pensions pot to reduce deficit but this didn’t touch the surface as deficits keeps rising .

The largest 350 British firms are still struggling to meet their final salary pension commitments to their current and former employees, with total deficits only reducing by £4.1billion to £64.9billion since 2009 despite the hefty contributions by firms.

I keep a very close eye on this as this is a problem that’s just getting worst and people are not aware of it , I started a 3 part article in the British Chamber of Commerce Japan to highlight this , the first of these post was “UK FIRM PENSIONS: IS THE END NIGH? and this talks about this and the problems facing UK defined benefits scheme .

Number of these companies with pension deficit are flirting with the prospect of going into administration as their pension deficits at more than 20 per cent of their market value, according to pension consultants Barnett Waddingham.

Last month i posted ” 7,000 mineworkers retirement takes HUGE HIT ! British Coal Pension enters PPF , Who’s Next ?” this explains what happens to people in a scheme like this .

Deficits are calculated based on the promises made to current and past employees. They can fluctuate as investment returns rise and fall and as life expectancy increases.

I like to emphasis it’s a promise not a guarantee ,companies have the right to change the benefits they pay a recent example is Thousands set to lose out as drugs giant Glaxo slashes pension benefits for UK workforce

Defined benefit (DB) pensions see employers guarantee workers an income for life once they retire.
The amount they get is calculated by multiplying a fraction of their final salary, or their career average salary, by the number of years they have worked.

The schemes have been closing down at a record rate – particularly in the private sector – as they have become increasingly unaffordable and have caused firms to build up significant deficits.
Instead, most companies are now offering defined contribution schemes – known as money purchase pensions – where they offer to match or double an employee’s contributions to a pension pot, which is then invested.

Upon retirement, it’s up to the pension holder to buy a retirement income – either through an annuity or income drawdown.

Barnett Waddingham says that with firms having to fork out so much to meet their final salary pension commitments, those on money purchase schemes may well be losing out.

If you like more information on your options on this let me know ,

Tony Evans

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