BRITAIN’S private sector pension scheme deficits have soared to a new record high, jumping 53 per cent in a single year to £390 billion, figures show today.
The huge rise in the shortfall for so-called defined benefit[DB] pension schemes comes after Downing Street moved to quash speculation that the UK Government’s promise to the grey vote on a triple lock for state pensions could be reviewed.
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Concerns were raised of a rethink after Baroness Altmann, the former Tory pensions minister, warned the cost of keeping the safeguard in place would be "enormous" after 2020 when the number of pensioners is due to rise significantly.
She revealed she had tried to persuade David Cameron to drop the triple lock - whereby the state pension rises by the inflation rate, average earnings or a 2.5 per cent safety net; whichever is the highest - but he refused for political reasons. The Tory peer suggested his successor in No 10, Theresa May, might be more supportive of changing the policy.
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"The triple lock is a political construct, a totemic policy that is easy for politicians to trumpet, but from a pure policy perspective keeping it forever doesn't make sense," declared Lady Altmann, adding: "I was proposing a double lock whereby either you increase state pensions in line with prices or with earnings.”
For Labour Debbie Abrahams, the shadow work and pensions secretary, said any dumping of the triple lock would be “a grand betrayal, a shocking broken promise hitting pensioners in the pocket”.
But No 10 intervened to say: “The manifesto contains a commitment to protect the triple lock. That commitment still stands."
SNP MP Ian Blackford renewed calls for a full independent pensions review to investigate existing inequalities and the impact of new initiatives like the Lifetime ISA following the “downgrading of the pensions brief”; Richard Harrington was made Under Secretary of State for Pensions last week, the most junior of ministerial positions.
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The MP for Ross, Skye and Lochaber said: “We need no more con tricks from the UK Government on pensions; Theresa May has downgraded the pensions brief and the independent review into state pensions increases will only scratch the surface of UK pensions. We need urgent action on pensions and a full, independent commission to investigate everything from auto-enrolment to the latest pension reforms.”
Today, Jardine Lloyd Thompson[JLT], one of the world’s leading providers of advice on worker benefits, showed in its index on DB private sector pension schemes across the UK that the total deficit had risen from £255bn last July to £390bn now; a rise of £135bn.
The figures show that while the value of the pension schemes’ assets has risen in the last 12 months from £1.26bn to £1.39bn, the rise was outpaced by the increase in liabilities, which rose from £1.51bn to £1.78bn. The funding level, the difference between the amount of money in a DB scheme’s funds and the amount needed to pay the promised retirement incomes to its members, has dropped from 83 per cent to just 78.
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Charles Cowling, director of JLT Employee Benefits, said: “Markets may have recovered, following their initial dive in the aftermath of the Brexit vote, but conditions remain challenging for pension schemes. With hints of a rate cut on August 4 at the next Bank of England’s meeting, it looks increasingly likely that record low rates are here to stay.”
He suggested that in today’s environment pension schemes could not continue to follow the same strategies they had in the last 10 years.
“For those pension schemes that have little or no protection against movements in bond yields, the big question is whether they want to increase interest rate protection now that rates have fallen further to record lows. Instinctively, it will be difficult for trustees and companies to hedge interest rates at current levels when they have so far held off doing so in the hope of an interest rate rise and have seen pension deficits increase as a result.
“By continuing a policy of not hedging interest rates, companies and trustees are effectively taking a large bet against the markets.”
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