Are Defined Benefit Pension Funds Disappearing?

CarrilionAlthough this could be a sore subject for many of those reading, the article below and ones like it are important to pay attention to with shifts in the pensions environment.

Below you will find an article released on 14/01/18 by Geoff Ho on express.co.uk. In the 24 hours since this article was released, Carillion has now gone into liquidation putting thousands of jobs at risk and needing £300M of short-term funding. As Carillion is carrying a pensions deficit of roughly £580M this could be very worrying for retired Carillion workers, although, their pensions will be protected by the Pensions Protection Fund (PPF) acting as a pensions “lifeboat” to ensure all pensions are paid out in accordance with its normal rules.

Defined benefit pension funds are at risk of disappearing says Geoff Ho

Pension Protection FundEmployer-sponsored defined benefit pension funds have been struggling under enormous financial pressures for years and the day is coming when there will be none left in the private sector.

The Government’s Pension Protection Fund (PPF) is on standby in case it needs to rescue the 13 UK defined benefit (DB) pension schemes operated by Carillion, the outsourcing and construction group that is fighting for its survival.

Even if Carillion escapes the fate of the Toys R Us, Palmer & Harvey and Monarch Airlines schemes, others will follow soon enough.

Over the last 20 years a toxic combination of low interest rates, stock market crashes, accounting rule changes, Government tax raids (see Mr G Brown) and people living longer have fatally undermined the DB pensions system’s finances.

Even though stock markets have been on an extended bull run, low interest rates have sent pension fund liabilities rocketing.

Rates have started to rise, but it is too late as firms are no longer willing to shoulder the burden of running a DB scheme.

No company formed in recent years offers one.

The private sector DB schemes that have surpluses will eventually end up being sold to insurers, while the underfunded ones will wind up with the PPF.

It will not happen tomorrow, but the sun is setting on the golden era of workers’ pensions and only schemes that expose members completely to the stock market, called defined contribution funds, will remain.

Article source.

*Please note that this article does not necessarily reflect Capital Wealth Partners (CWP) view on the current DB Pensions situation and CWP does not encourage anyone to move away from a DB Pension where it may not be suitable.

Capital Wealth Partners Limited is a company registered in England and Wales and are authorised and regulated by the Financial Conduct Authority.