Workers in around 600 final salary pension schemes should be told honestly that they will never get their promised retirement benefits, Pension Protection Fund chief executive Alan Rubenstein has said.

 

Although the PPF's index of scheme deficits improved last month, narrowing from a combined £368billion to £249bn, four-fifths of all schemes are in deficit and Mr Rubenstein said perhaps 10per cent had no chance of delivering on their promises to workers.

"We should admit to ourselves that these schemes can't make it, and figure out what companies will be saying to their members. What we want to avoid happening is employees thinking they have this promise, but the employer goes bust and get their benefits cut back and get dumped on the PPF.

"If it is clear the company is never going to be able to afford the cashflows, then there needs to be a renegotiation."

Speaking at the National Association of Pension Funds' investment conference in Edinburgh, Mr Rubenstein said the swift improvement from dire figures in January showed the volatile nature of scheme deficits. "There is no cause for panic. But lets not kid ourselves, the deficits in UK schemes are real and aren't going away in a hurry."

He said that when the Pensions Regulator and the safety net PPF were set up a decade ago, the average scheme recovery plan was eight to nine years. "You would have expected that 10 years later that would be zero, but today the average recovery plan is eight to nine years - in that sense we have made limited progress."

Mr Rubenstein said the PPF was financially strong, having improved its surplus last year, and on track to scrap the company levy and become self-financing within 15 years. But it was not good for companies to be "making promises they can't keep".

But he issued a warning to those tempted by next month's pensions reforms to transfer out of a defined benefit (DB) final salary schemes into a defined contribution (DC) scheme which they can cash in. "The idea that you might be better taking a transfer than falling into the clutches of the PPF is to me completely misguided." Underfunded schemes would be offering reduced transfer values which would usually represent far worse value than staying in the DB scheme.

Mr Rubenstein added: "You have to ask yourself very hard questions about leaving your DB scheme even if you are concerned about the health of your employer. I am quite worried about people being poorly advised...some of it may be just poor advice, some may be self-centred advice, running all the way through to scams."

Meanwhile Standard Life has unveiled its offering to pension customers ahead of next month's reforms. It says customers can opt for full cash withdrawal and money will be "within bank accounts in days". Drawing cash or income from a pension will be subject to an all-inclusive 1per cent charge on funds.

Standard says: "Customers can use intuitive online models to 'play' with different scenarios, helping them to fully understand the impact and things they need to consider before making decisions."

Head of pensions strategy Jamie Jenkins said Standard would also complement the government's Pension Wise service with "integrated online and phone support, taking every opportunity to make the information real and relevant".