End of the road for final-salary pensions
By Liz Stephens
Nearly a quarter of FTSE 100 companies will be unable to pay off their pension deficits, a report has claimed.
The report by accountancy form KPMG says 22 per cent of major firms will not be able to make the necessary payments.
Final-salary pension schemes are now at “tipping point” with many big firms already closing schemes to existing members of staff – not just to new recruits.
KPMG calculates the FTSE 100 firms are now paying as much to pay off past deficits as they are in paying in contributions for current staff.
The accountancy firm calculates that within five years £4 of every £5 will be paid in to clear past deficits.
The combined pension deficit of FTSE 100 index firms stood at £80 billion at the end of June this year, compared with just £20 billion at the end of 2007.
It is thought poor investment returns and rising longevity have caused them to balloon further.
Mike Smedley, pensions partner at KPMG, said: “It is unprecedented for companies to be spending as much or more on their defined-benefit pension benefits for previous employees than for current staff.
“This is likely to result in more and more companies opting to close defined-benefit schemes altogether”.
Recently, it was revealed that the Royal Mail has a pensions deficit of £10 billion which could potentially bankrupt the company.
The government had originally planned to take on the pension fund deficit and to change regulation but talks stalled on part-privatisation of the company and the government are currently refusing to bail out the pension deficit.
Under laws supervised by the Pensions Regulator, pension scheme trustees and employers have to agree a plan for the employer to pay off any deficit in its pension fund – usually within 10 years.
But some employers who have done this have still found that their deficits have continued to rise.
The Pension Protection Fund recently estimated that the collective deficit of all the UK’s 6,400 final salary schemes is £158 billion.
