Pension deficit rises again

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The pension deficit in the FTSE 350 rose by almost a quarter in 2005 to 93 billion ' despite strong equity market growth, according to Mercer Human Resource Consulting.

The news comes just weeks after Rentokil Initial, Arcadia and Co-operative Group announced they were either abandoning final salary schemes or taking measures to reduce the costs.

It had been thought that strongly performing markets would be enough to wipe out the pension scheme deficits but now it appears that liabilities are growing so quickly, it will be difficult to offset them.

The problem is that although employers have been able to close final salary schemes to new employees, their ability to cut off existing employees from future benefit accruals is something that remains untested in the courts. It is possible that any...

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By andlib
11th Jan 2006 12:29

Pension shortfalls and tax
In all the discussions about the pension fund shortfall, very little comment is made concerning the tax changes brought in in 1997 on 'New Labour's' accession that has, in my opinion, exacerbated the position. Why do the pension trustees not highlight the fact that the fund is in deficit having lost £xmillion in taxes that were introduced as a change to the taxation treatment of a fund established under a different tax regime?

As an additional comment, all the companies that took pension holidays on actuarial advice when the pot was apparently over funded due to the rise and rise of FTSE should be looking to their actuaries for compensation for misadvice. Surely longevity of life was not such a surprise to this all seeing profession.

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11th Jan 2006 17:03

Governments Raid on Pension Funds
I too am amazed how little appears in the press about this Governments raid of the Pension Funds since 1997 and the effects this has had on the Stock Market, with the fall in share values resulting partly from the reduction in funds being re-invested.

I believe the Tax on Dividends was estimated to raise between £4 and £5 billion per year. If 8 years have passed, that accounts for £40 billion of the current deficit before you consider the additional interest and capital value that would have accumulated.

Mis-selling of Endowment Morgages now seems to be the latest candidate for the scare-mongerers, leaping on the band wagon of our blame culture. If the Pension Funds had not had the Taxation imposed in the first place, would the whole question of a Pension crisis not have arisen in the first place?

It might be helpful for the whole Pension Industry if the Opposition and Press would make a much bigger issue of the Taxation being taken from the Schemes and although the clock can't be turned back, at least get the previous position re-instated.

Denis Gallivan

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By Anonymous
11th Jan 2006 19:15

Pension holidays?
I'm amazed that companies which not so long ago were advised to take contribution holidays on the basis that the funds were overflowing (mainly as a result of the stockmarkets strong performance) are now in deficit and no one seems to be raising the issue.

At the time I felt this was an unethical approach to pension management as the pension fund surely belongs to the future pensioners not the company and therefore any surplus or deficit is theirs appears that where there's a surplus the company gets it and where there's a deficit the pensioners least in terms of account closure and loss of benefits. Surely the fund surplus should have remained until such time as there were no more beneficiaries and then distributed to the company shareholders or their beneficiaries(presumably the company having long since gone by the time all the pensioners claims were complete).

Isn't it about time someone performed the calculation for every company that took a contribution holiday to establish what the fund would be worth today if the contributions had continued at the level prior to the holiday (taking account of the market fluctuations/inflation/interest etc for the intervening period) and then reviewing the position against deficit with the company forced to "make good" the extent of the difference?

Obviously this would have a knock on effect against the fund managers/advisors and auditors of the funds concerned who would be sued by the company on the basis that everyone is aware of the population dynamics in this country and every investor knows the market can go down as well as up so the advice was flawed and should have been recognised as flawed immediately!

It would also have the effect of crashing the market further as companies forced to cough up their "holiday savings plus interest" would invariably be less attractive to investors (in many instances the pension funds themselves) ...doesn't this sound a little like a "circular reference" as Excel would put it?

As regards people losing their pension rights, I know of a number of instances where "final salary pension schemes" have been wiped out by companies who have "restructured" as a result of "mis"-management decisions. Notably existing pensioners and former employees retained their rights whilst those still employed lost everything...seems kind of harsh when the former employees were frequently either part of the reason for the restructuring requirement or else were able to avail themselves of their new pension scheme in their new company.

It's about time the industry took a good look at what's going on and started acting ethically for a change!

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