By Sam Fleming
£200bn crisis hits company pensions: Soaring deficit puts 88% of schemes in the red
The scale of the pensions crisis was laid bare yesterday as figures showed the deficit in company schemes had soared above £200billion.
A staggering 88 per cent of the country’s 7,400 defined-benefit pension schemes face a shortfall amid pressure from falling stocks and people living longer.
In June 2007, pension funds were registering a surplus of more than £100billion. A year later this had turned into a deficit of £13billion.
But yesterday’s figures from industry safety net the Pension Protection Fund showed the shortfall between assets and liabilities in the 7,400 plans rocketed to £200.1billion at the end of June.
Pensions regulator chairman David Norgrove yesterday warned of ‘severe pressures’ on employers, pension fund trustees and members.
The deficit has prompted many firms to close plans that offer guaranteed incomes based on an employee’s final salary.
Banking group Barclays recently announced it was shutting its scheme and transferring staff members to a less generous plan.
Meanwhile, BP said it will close its final salary plan to new members next year.
And supermarket group Morrisons is following suit, turning to a scheme linked to the average salary of an employee over a career for 10,000 members.
Experts say it is inevitable further schemes will close. Yet civil servants are continuing to enjoy generous final salary schemes that are building up huge taxpayer liabilities for the future.
The potential cost of public sector pensions could equate to £1trillion or more, according to some estimates.
Leading pensions expert Ros Altman said: ‘We are on the way to being a nation of pensioner poverty.
‘These defined-benefit pension deficits are frighteningly large. Companies are really struggling with the cost. It is inevitable that more and more schemes will close because firms can’t afford the cost and uncertainty involved.
‘It is a real problem for corporate UK, because companies in other countries don’t have these huge liabilities.’
Research by Credit Suisse this month showed households in continental Europe save almost 15 per cent of their income, while in the U.S. the figure is over 10 per cent.
However in Britain, families are saving just 3 per cent of their incomes, suggesting we will have to squirrel away far more money in years to come to avoid retirements of penury.