All posts by John

PENSION WARNING: Fifth of final salary schemes at risk from downturn

FINAL salary pension savers have been warned many schemes could collapse if Britain were to be hit by an economy downturn.

Final salary pension schemes could be at risk in a recession

Up to one in five FTSE 100 so-called defined benefit schemes would be at risk in a recession, according to research by Cardano and Lincoln Pensions.

And consumer goods and services firms are the biggest worry, the study found.

The group estimated pension deficits of firms on the bluechip index would surge by around £100billion if the economy took a hit.

A fifth of the schemes would then be at risk of failure, as pension risk soars to 30 per cent or more of the firm’s value.

Continue reading (Express) →

BT’s move to cut workers’ pensions has implications for millions

BT is responsible for keeping Britain’s largest pension fund afloat

Thousands of pensioners face the prospect of sharply reduced retirement incomes as major British companies attempt to alter the terms of ruinously expensive pension pledges.

Telecoms giant BT has written to current and former workers informing them it is going to court to determine whether it can reduce the annual increases applying to pensions paid to its employees.

BT is far from the only business seeking to argue that previous promises made to staff are today unaffordable, and that they should be allowed to “water down” some of the benefits.

On Wednesday, data showed that as many as three million workers with “final salary” type pensions had a 50:50 chance of losing a fifth of their promised income – because companies could not afford to pay.

The figures, from the Pensions and Lifetime Savings Association, are the latest in a series of reports highlighting a crisis in company pensions.

In the case of BT, the proposed move would mean many of the 80,000 current and former staff needing to find other sources of income to bridge the gap.

Continue reading (The Telegraph) →

Pension deficits of UK firms rose by £12bn in last year

Pension deficits have been climbing for six years (Source: Getty)

The combined pension deficit of UK companies climbed by £12bn last year, according to research released today.

Research by Barnett Waddingham has found the aggregate pension deficit of FTSE 350 firms is now £62bn, which amounts to 70 per cent of pre-tax profits for the year (£88.9bn).

The firm said deficit levels were now higher than they were immediately after the financial crisis.

The pension deficits of UK companies have been rising since 2011, when the total deficit stood at £54.5bn, and represented 25.4 per cent of total profits.

However, Steve Webb, director of policy at Royal London, said that in the context of deficit movements, £12bn represented a “fairly modest change”, and said firms should “not panic”.

Continue reading (City A.M.) →

UK recession, unusually, to punish gilts and pension funds

Not only are the chances of a UK recession rising, it may be the rare recession in which bond owners get badly beaten up.

Coming at a time of critical underfunding among UK pension funds, who have been among the biggest buyers of otherwise poor-value gilts, a bond-punishing recession would further undermine Britain’s retirement system.

With a fragile Conservative-led government engaged in fraught Brexit negotiations in which they are the weak hand, bad economic news continues to rain down on Britain.

A survey from credit-card company Visa released Monday showed consumer spending falling by 0.3 percent in the three months to June compared to a year ago. Another from accountants Deloitte showed 72 percent of CFOs gloomy about post-Brexit business prospects. Companies expect a fall in hiring, capital expenditure and discretionary spending, Deloitte said.

Not only are they not spending, British consumers are spending the smallest proportion of disposable income in more than 50 years, as below-inflation wage growth hits home. This is in an economy which was already at something close to a stall: first-quarter GDP growth, released in late June, showed the economy expanding at just 0.2 percent a year.

Continue reading (Reuters) →

Budget 2017: offshore pension transfers face 25% tax charge

25 per cent could be deducted from schemes outside European Economic Area

Those looking to move a UK pension offshore face a 25 per cent tax charge under a dramatic crackdown on pension transfers.

The tax charge, announced in the Budget, will apply to individuals requesting transfers to qualifying recognised overseas pension schemes (Qrops) on or after March 9 2017, the government said.

However, the 25 per cent tax charge will not apply if, from the point of transfer, both the individual and the offshore pension scheme are in the same country, both are within the European Economic Area (EEA), or the Qrops is provided by the individual’s employer.

“If this is not the case, there will be a 25 per cent tax charge on the transfer and the charge will be deducted before the transfer by the administrator or manager of the pension scheme making the transfer,” the government said.

Payments out of funds transferred to a Qrops on or after April 6 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident, the government also announced.

Continue reading (Financial Times) →


Pension transfers are now worth more than the average home

A SURGE in pension transfers typically worth more than the value of the average home has taken place over the last year, a survey of financial advisers has found.

Pension transfers are costing people the value of the average home

Mutual insurer Royal London found a growth of more than 50 per cent in the volume of transfers out of final salary pensions taking place in the last year, with the most common transfer value lying in the £250,000 to £500,000 range.

This compares with an average house price in the UK of £216,000 as at March 2017.

Final salary pensions, which are a type of defined benefit (DB) scheme, are often described as “gold plated” because they give savers a guarantee that they will have a certain level of income when they retire and they have become increasingly scarce.

Continue reading (Express) →

UK corporate pensions headache could worsen in 2017

A woman walks past the Wood Green branch of department store chain BHS, after its final closure, in London, Britain August 28, 2016.

More UK companies are expected to adjust capital or cut dividends to fill growing holes in final salary pension schemes this year.

The discovery of huge pension deficits at Tata Steel (TISC.NS) and collapsed retailer BHS in 2016 caused scandals and drew attention to the widening gap between the assets held by such schemes and the money they owe to pensioners.

British government bonds, or gilts, have been the main assets of defined benefit or final salary pension schemes. But years of low UK interest rates and a flight to safe-haven investments after Britain’s June vote to exit the European Union have depressed yields, leaving shortfalls.

Several companies have taken steps in recent months to finance the deficits. Specialist plastics maker Carclo (C1Y.L) cut dividends, printing firm Communisis (CMS.L) reduced its capital base and fund manager Rathbone (RAT.L) raised capital.

With FTSE 100 company pensions schemes now only 88 percent funded as at Jan 27, 2017, according to consultant Aon’s pension risk tracker, compared with 98 percent at end-2015, more companies are expected to follow suit.



Continue reading (Reuters) →

Defined benefit pension transfer values ‘shooting up’

Most workers are allowed to sell their defined benefit pensions for cash

Six million people with defined benefit pensions have seen their transfer values shoot up in the last year, according to a major insurance company.

Under the rules of most defined benefit schemes, workers have the right to swap their pension entitlement for money.

According to the insurer Royal London, the cash that such people can get has soared over the last 12 months.

It says some are being offered “eye-watering” sums, often tens of thousands of pounds more than a year ago.

For someone with a pension income worth £20,000, it is not uncommon to be offered 30 times that amount – in other words, £600,000 in cash.

But while selling the rights to a defined benefit (DB) pension may be useful for many people, Royal London is also warning that there can be significant disadvantages.

Continue reading (BBC News) →

Radical Government plans to reform final salary pensions could cost savers 30pc of their pension

Final salary type pensions could be about to become much less generous
Final salary type pensions could be about to become much less generous

Pensioners could lose nearly a third of their retirement pot under plans by politicians to save companies being crippled by growing pension costs, analysis for the Daily Telegraph has found.

Cuts to final salary-type pensions could become possible under measures being considered by MPs in the influential Work and Pensions Committee to make them more affordable for companies. Cash-strapped employers could reduce workers’ final salary-type pensions without first going through courts, which is currently not allowed.

More than 11 million workers have final salary pensions and could be affected by the possible overhaul, as pressure mounts on the Government to make them more sustainable.

It comes as the total funding “black hole” in UK final salary pension schemes has for the first time topped £1 trillion, prompting experts to conclude they are too costly to keep going in their current form.

Continue reading (The Telegraph) →

Brexit’s Biggest Fans Face New 115 Billion-Pound Pension Hole


Turning 65 in the U.K. used to mean mandatory retirement and a future of endless holiday. But in 2016 it has come to signify a very different cut-off: membership in the single most pro-Brexit age group in the June 23 European Union referendum.

About 60 percent of Britons 65 and older voted to leave the world’s largest trading bloc in the recent vote, the most of any age group, according to two separate exit polls. The glaring irony is that senior citizens are also the most reliant on pensions, which face a worsening funding gap since the Brexit vote.

The combined deficits of all U.K. defined-benefit pension schemes, normally employer-sponsored and promising a specified monthly payment or benefit upon retirement, rose from 820 billion pounds ($1.1 trillion) to 900 billion pounds overnight following the referendum, according to pensions consultancy Hymans Robertson. Since then, it has grown further to a record 935 billion pounds as of July 1.

Continue reading (Bloomberg) →