UK employers are facing a pension deficit of £779.9 billion, according to the Pension Protection Fund’s (PPF) latest issue of the Purple Book, its annual summary of the health of UK final salary pension schemes.
The deficit is the amount of money employers will need to find to fully meet the pension benefits they have committed to paying staff through defined benefit (DB) – such as final salary – pension schemes.
The data includes all 5,794 pension schemes covered by the Pension Protection Fund, which provides compensation to members of pension schemes if their employer goes bust. The data does not therefore apply to public sector pension schemes that are backed by the taxpayer, such as the NHS, Police or Teachers’ pensions.
Although the £779.9 billion deficit is a small improvement on last year, when it stood at £800.9 billion, it is in spite of positive stock market returns and special contributions from employers worth £10.5 billion in the first half of 2016. These are additional payments made by employers to reduce their pension deficit and improve the health of their scheme.
Commenting on the figures, Tom McPhail, head of retirement policy at Hargreaves Lansdown says: “Scheme members have built their retirement plans on promises made by their employers. It is now up to those employers and the pensions industry to deliver on those promises. There should be no compromise over the level of benefits, no sneaky watering down of inflation-proofing terms to get the schemes off the hook.”
He adds: “Looking forward, the future lies with defined contribution pensions. Too often the transition away from final salary pensions has been accompanied by massive cuts to employer contribution rates. The average defined benefit scheme employer contribution is 16.2% of earnings, compared to just 2.5% going into defined contribution plans. This trend in reducing contributions has to be reversed.”