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Lockdown adds £10bn to deficit of UK’s final salary pension funds

Companies could be required to find large sums to top up pension funds after new figures showed that more than £10bn was added to the combined deficit of the UK’s final salary pension funds during March.

With the coronavirus shutdown wreaking havoc on companies and stock markets around the world, the total deficit of the UK’s 5,422 defined-benefit schemes increased to £135.9bn at the end of March, up from £124.6bn at the end of February, according to the latest data from the Pension Protection Fund.

Millions of retirement savers have been left nursing big losses because of the corona virus pandemic, though payouts are guaranteed for the most fortunate. With a defined-benefit pension scheme, the amount a person eventually receives is based on how many years they worked for their employer and the salary earned. The employer is responsible for ensuring there is enough money at retirement to pay the pension income.

Tom Selby, a senior analyst at investment firm AJ Bell, said: “Today’s figures demonstrate yet another grim reality of the current crisis, with the total deficit of schemes in the UK rising by over £10bn in March.”

He added that while such figures may make some scheme members uneasy, the most important thing in most cases was not the value of any deficit today, but the ability of an employer to survive long enough to pay out pensions now and in the future. “From a company perspective, bigger defined-benefit deficits are a problem because they could threaten to divert cash that would otherwise be used to fund growth plans and reward shareholders,” said Selby.

This article was curtesy of The Guardian. We always try to share relevant information with our clients and followers. Their article can be found here

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