Schemes will have to cut benefits in face of record deficits

INDUSTRY FIGURES think defined benefit (DB) schemes will have to cut benefits to tackle spiralling deficits, according to research by sister publication Professional Pensions.

Its Pensions Buzz survey found 60% believe DB schemes will have to compromise benefits to deal with shortfalls.

Just a quarter of the 120 respondents (24%) said schemes would not, or could not, reduce benefits.


This research comes after the Pension Protection Fund (PPF) 7800 Index reached a record low deficit of £367.5bn in January.

“It has now become a question of sustainability,” said one commentator. “Without new discretions being granted to allow for modifications there will be a tidal wave building for PPF entrants.”

Another warned: “This is a constant issue and not enough schemes are making realistic hard decisions to reduce deficits. This creates a problem for employers effectively sponsoring pension schemes for ex-employees in many cases!”

In the no camp, one argued companies agreed to provide benefits and they needed to deliver what they promised.

Another said it was not in the power of DB schemes to do anything to renege on promises made.”If the employer can’t pay its debts, the law of bankruptcy takes over. DB schemes themselves have no power to compromise debts owed ultimately to their members.”

Among those who sat on the fence, one lamented that the industry was trapped in a vicious circle. “The PPF has massive problems if this position continues unchanged and the PPF themselves may have to impose further limitations on the level of benefits payable.

“With regard to schemes outside the PPF the next round of valuations may see further entries into the PPF but the big issue will then be who pays for the emerging deficit. Imposing this on the remaining schemes will only hasten their entry into the PPF.”

To see the results of the survey, click here.

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