BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Programmes: Panorama  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Panorama
Problems and solutions
Pensioners
Dr Ros Altmann, pensions expert and advisor to the Government sets out the key problems with deferred benefit or final salary pension schemes.

She also gives her potential solutions to the crisis facing the pensions system.

Click on the links to read the The problems and Dr Altmann's possible solutions.


THE PROBLEMS

  • There is no protection in place for people who are not yet retired, when their final salary pension scheme is wound up after employer insolvency.

  • Most people think that their pensions are protected, but they are not - even after the 1995 Pension Act, the introduction of the Minimum Funding Requirement (MFR), Myners Review and Pickering Report, an employer's final salary scheme may provide no pension at all for members who have contributed loyally for 30 years or more.

  • The final salary pension is not 'guaranteed' by employers at all for those who are still working - people do not generally realise this. If the employer decides to wind up the scheme, or becomes insolvent, they may get much reduced pensions or even no pension at all.

    Robert Maxwell
    The 1995 Pensions Act was brought in after the Robert Maxwell scandal

  • Pensioners already retired (even Directors who have taken early retirement) have priority over deferred pensioners. Those who are still working may not even get their own contributions back if the assets in the scheme are insufficient on wind-up, after having to pay pensioners first.

    One of the big problems is that the 1995 Pensions Act (which was designed to protect pensions after the Maxwell case) introduced a particular 'order of priority' which must be followed, when a scheme's employer becomes insolvent and there are not enough assets in the fund.

    This order of priority says that the assets of the fund must be spent on pensions already in payment, plus their full inflation-linked increases, before the pension promises of members who have not yet started drawing their pension can be paid.


    At the moment, even fully solvent employers can just decide to wind up their pension schemes

    Dr Ros Altmann

  • At the moment, even fully solvent employers can just decide to wind up their pension schemes. If they do not want to keep running their final salary scheme, it is quite easy for them to just walk away from their liabilities.

    Employers in the past have generally referred to their schemes as 'guaranteed' pensions, but the law currently allows them to just decide to wind up the scheme and leave members short-changed.

    The law only requires an employer to pay in to their scheme enough to provide pensions for members who have not yet retired at a level specified by what is called the 'Minimum Funding Requirement' or 'MFR'.

    In fact, at the moment, the funding level will only buy about 40% of the pensions promised to workers under age 45. Even if the employer can well afford to pay in more, the law does not require them to.


    People can contribute for over 30 years and end up with no pension

    Dr Ros Altmann

  • Government rules prevent people from contributing to a private pension, if they are in an employer's scheme. This means most people have had no way of providing any other retirement income for themselves, yet their pension contributions are not properly protected.

    People can contribute for over 30 years and end up with no pension. This is like encouraging people to put all their money into one share on the stock market. However strong the company is, no-one would ever be advised to do this with their life savings (and their job), but that is what happens when an employee is in their employers final salary scheme.

    If they cannot hold more than one pension (and this only became possible last year- and still only for some people, not all) they cannot diversify their retirement assets.

Return to the top of the page


POSSIBLE SOLUTIONS

There are changes we can make to solve this problem. Policies to provide some safeguards need to be divided into two areas. Firstly to protect members of schemes whose employers become insolvent and secondly, to protect members of schemes whose employers decided to wind the scheme up, but remain solvent.

For schemes winding up due to employer insolvency:

Additional Solutions for schemes winding up when employer still solvent:

There are several policies required to address the problems of employers not being required to put in enough money to make up the total value of promised pensions when they wind up their scheme:



Case Study

The expert

Guides and Tools



Forum
Links to more Panorama stories are at the foot of the page.


E-mail this story to a friend

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes