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Pension crisis in UK set to worsen

The pension crisis in the UK market is set to worsen substantially in the future with news of a £194.5 billion deficit on the 7800 defined benefit schemes monitored by the Pension Protection Fund. It would appear that 9 out of 10 defined benefit pension schemes (otherwise known as final salary schemes) are currently in deficit and unless the situation is resolved in the short to medium term pensions could well be at risk in the future.

Traditionally the underlying company would normally use profits from operations to increase contributions and over time the shortfall would be addressed. However, as we know more and more companies in the UK are struggling to make ends meet and will not be in a position to increase their pension fund contributions for some time. If the recession lasts for a number of years and affects the level of the stock market then the £194.5 billion deficit could just be the beginning of a serious problem for the UK.

Having been affected once before the UK government is very keen to ensure we do not see a rerun of pension fund collapses of the last few years but quite what they can do in the short term remains to be seen. Compensation figures and compensation schemes have been increased but this comes at a cost to the industry which will then be transferred to customers.

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