The UK pensions black hole is growing
It’s become quite evident in recent times that UK pensions have been sailing into waters far murkier than you may have previously imagined. At this point, the black hole is spiraling further out of control.
With £190bn on the line and counting and as every two in three schemes shift into the red (according to the latest industry figures), by the end of July, the Pension Protection Fund tracked about 3,537 schemes that were in deficit, with a total shortfall of £186.5billion. This amounted to approximately 63 per cent of the 5,588 pension pots monitored by the PPF.
With this gushing wound exposing how vulnerable the retirement plans of millions of workers are, could it be that companies are focusing more on distributing cash to shareholders compared to the stability of their staffs’ future? Experts seem to think so.
The heat is turning up a notch for these companies with watchdogs like The Pension Regulator (TPR) paying attention to the growing disparity between pay-outs to shareholders and payments to the pension fund. TPR is keeping a close eye on situations such as the one at House of Fraser after retail tycoon Mike Ashley bought it over in a deal that allows him to walk away from the pension scheme.
Company bosses are coming under fire too, following the high profile collapses of Carillion and BHS. Trustees and regulators are being pushed to convince bosses to pay more into schemes. A number of these schemes appear annually and a number of them will fall into the PPF. The message that should be clearly made now is that prioritising dividends over pension pay-outs is unacceptable.
As it stands, the biggest pension deficits in the FTSE 100 include Shell with £6.9billion, BP with £6.7billion, BAE with £6.6billion and BT with £9billion.
Meanwhile, the watchdog remains ever-vigilant of the many ongoing cases of apparent pension unfairness in many companies. Carillion collapsed at the beginning of this year with a pension black hole amounting to approximately £900m and bosses were immediately accused of placing shareholder pay-outs ahead of pension contributions. BHS had a similar treatment after its collapse with a £571million black hole. Sir Philip Green agreed to pay £363million to the fund that had been bought by an insurer.
This string of high profile scandals has led Britain's pensions watchdog to pledge millions of pounds towards beefing up its workforce with the aim of fortifying its resources in order to become a "tougher regulator". TPR stated recently that it would spend an extra amount over the next year in order to fight for fairness and safeguard pensions. The collapse of retail giant BHS and the recent failure of construction giant Carillion have given rise to the indication that a more watchful eye needs to be placed on the practices of companies and their pensions.
This is what a TPR spokesman had to say about the dilemma: ‘Trustees should negotiate robustly with the sponsoring employer to secure a fair deal for the pension scheme, while employers should balance the interests of pension savers with returns to shareholders and investors.’
However, a surge in funding and resources can only go so far with regards to protecting workers' retirement pots as the regulator still does not possess the power to effectively punish firms that have large pension deficits and want to pay big shareholder rewards. New limitations on power for the regulator may be needed in order to strike at the core of this issue.
Not all hope is lost
There are some options available that would allow you to ensure that your hard earned money is protected and your funds be better managed. Just get in touch with me to get to know more about what options are available for you and how we can make the most of your funds.