Generous “gold-plated” pension schemes that were once readily available to British workers could be completely extinct outside the public sector within years, according to experts (final salary pension advice).

Private companies have been closing so called “defined benefit” pension schemes, including those based on employee’s final salary pension, to new joiners for many years.

Now the few that continue to allow current schemes members to accrue benefits are predicted to disappear.

With retired scheme members living longer than predicted, large deficits have built up that companies must take action to plug.

JLT Employee Benefits, a company that assists companies with pension deficits, has said that the combined deficit among FTSE 250 companies – those listed on the stock exchange that are bigger than all but the largest 100 firms, increased to a record £81bn as at June 30 last year.

Only 11 of these companies continue to allow a significant number of employees to accrue the gold-plated pension benefits a number that JLT said it expected to shrink to zero within a year.

Among FTSE100 companies, for which JLT produces a spate report, only 23 firms continue to offer benefits to a significant extent.

And this year even more could close, says Charles Cowling, a director of JLT Employee Benefits.

“The ongoing spend and service costs of defined benefit pensions (final salary pensions), before any allowance for deficit spending, is a burden that many boardrooms would like to remove altogether, “he said”.

He added that changes to pension rules due in April would hasten the demise. An end of “contracting out” where a scheme member forgoes extra state pension in return for a notionally higher workplace pension contribution means companies that run defined benefit schemes will face higher National Insurance contributions if they want to keep their scheme open.

Additionally, lower limits on annual and lifetime pension contributions, also due in April, will reduce the incentive for company manager to keep scheme open.

Additionally, lower limits on annual and lifetime pension contributions, also due in April, will reduce productivity among companies, JLT said, and even put the future at some risk.

A total of 26 FTSE 250 companies have disclosed pension liabilities of more than £1bn, the largest of which is FirstGroup, the bus and train operator, with a liability of £4.9bn.

Fourteen FTSE 250 companies have disclosed liabilities greater than their stock market value. FirstGroup’s is more than three times its market value.

Companies with large pension deficits to service have less money to invest or pay to shareholder, while the burden makes them less attractive to potential buyers and less able to raise money from banks.

Defined benefit pensions are now readily available only in the public sector, although many of these schemes have become less generous because of attempts to cut costs.

(The Daily Telegraph, Ed Monk, 2016)

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