How are so many pension schemes in deficit?
While the British Telecom final salary pension scheme is currently attracting all of the headlines, there are many more major UK pension schemes in significant deficit. As we have covered on numerous occasions, the situation has arisen because of a number of factors which include:-
The assumption that the average pensioner will live longer than first thought
A reduction in investment returns and income
A tax and grab by the UK government some years ago
These three factors have come together to cause more and more concern in the UK pensions industry which has been under pressure for some time now. When you consider that BT will in due course need to inject billions of pounds into the scheme, although some of this will come from an increase in investment values in due course, this is sure to impact upon the underlying business.
Even though the demise of the final salary pension scheme in the private sector is well underway, with more and more schemes closing their doors to new members, many have been transferred to money purchase schemes to reduce future liabilities. Pension regulations and pension rules have been tightened to try and protect pension assets in the event of the underlying company suffering financial distress or even going out of business - whether these are enough remains to be seen.
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