Who will bail out failed pension schemes in the future?
Yesterday's news that the pension protection fund is now running an annual deficit of £1.23 billion is causing significant concern to UK consumers and UK businesses. This was the pension life boat put in place by the UK government to assist pension scheme members of failed pension schemes. However, nobody forecast the massive increase in pension scheme failures and the ever-growing financial liabilities taken on by the pension protection fund. So what will happen in the future?
The truth is that with income of just £600 million a year the pension protection scheme is severely underfunded at this moment in the economic cycle and will either need additional finance from the government or increased levies on UK companies. However, the more money the government attempts to take from the UK economy the weaker the recovery will be, although on the other hand the UK government has little in the way of financial capital to hand itself. So what next?
The truth is that the short to medium term future for members of failed pension schemes is very difficult to clarify. The UK government cannot afford to plough more money into the system which is not working while companies in the UK cannot afford an increase in their levies. Something will have to give in the short to medium term!
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