Final salary pension schemes in deepening deficit

The collective shortfall in the UK’s defined-benefit pension schemes has reached £242 billion.

The level of the deficit, which has grown by ten fold in the past year, could endanger the ability of the government’s Pension Protection Fund (PPF) to safeguard the retirement income of the schemes’ members.

Data from the PPF has revealed that last month’s improvement in the stockmarket was not sufficient to bridge the gap in pension fund financing. A drop in yields from government bonds more than offset the rise in stock and share values.

Three out of four defined-benefit funds are currently in deficit, while those schemes that do have enough money experienced a fall in funds from £59 billion to just £11 billion.

The purpose of the PPF is to offer fund members compensation if the company running their pension scheme fails or goes under.

In March, the number of firms asking the PPF for protection hit the 100-mark.

Now the PPF is expecting many more schemes to apply for help.

Industry experts are predicting that the ever-declining proportion of final-salary pension schemes will at some point mean that existing schemes will not be able to provide sufficient funding for the PPF to continue safeguarding retirement incomes.