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The Pensions Bubble
Monday June 5 2000
Reporter Sarah Powell
Producer Simon Finch
Assistant Producer Judith Ahern

Millions of employees who expect their company pension scheme to provide for them in retirement could be in for a rude awakening. In total, 10m people in the UK are covered by occupational pension schemes.

At the moment 90 per cent of these workers are on final salary schemes - which pay pensioners a proportion of their final salary for the rest of their life.

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But Panorama has uncovered evidence suggesting that many of these schemes are on the verge of changing the rules and calling time on generous pension benefits. With pensioners living longer companies are finding they can no longer afford to run such schemes.

A new survey of 1,000 people for Panorama revealed that 77% expect to be financially secure when they retire. But the survey also showed that as few as 30% of respondents are saving enough to achieve a comfortable retirement.

Instead, employees could find themselves in poorer paying "money purchase" schemes. Here the benefits paid depend on how well the pension companies have invested the contributions made over the years as well as the prevailing annuity rates on offer when an employee retires - in other words they are far less likely to receive so generous a pension.

Already over a third of Britain's companies have closed their final salary schemes. New research shows that another quarter of firms will do the same in the next couple of years.

If final salary schemes go - and the trend is certainly heading that way - there will be economic armageddon for our pensions in the future

John Quarrell
John Quarrell, a former head of the Association of Pension Lawyers, adds: "If final salary schemes go - and the trend is certainly heading that way - there will be economic Armageddon for our pensioners in the future."

But it is not just employees entering the workforce that have to worry. Workers who are already in an occupational pension plan could find that their companies are closing final salary schemes because they can no longer afford to run them.

Glyn Ridley
Glyn Ridley
Cardinal Broach plc, a machine tool manufacturer, was forced to close their final salary scheme because under new government regulations on funding there was a shortfall in the fund running into thousands of pounds. Managing Director, Glyn Ridley says: "We felt the only option in the circumstances was to go for the closure of the fund. The risk was unknown and it could have blown the company out."

Quarrell suggests that many other companies will be forced down this path. "A lot of board directors are closing their final salary plans and switching to money purchase arrangement or reducing the level of benefits."

For employees who have only a few years to retirement a switch could leave them with insufficient time - and money - to make up any shortfall in their pension provision. And legally it appears there is nothing they can do.

Quarrell says employees have little hope of challenging their employers in such cases. "You'll always find that within the contract of employment the company will always reserve the right to alter or change or to stop the pension scheme in the future."

Tim Hunt
Tim Hunt
35 year-old Tim Hunt has some pension provision. He tells the programme that all he needs is a regular income for retirement, nothing too extravagant. Panorama reveals that he will have to significantly increase his current pension contributions to meet his future hopes.

For younger workers there may be time to start saving for retirement. For older workers there may be nothing they can do to make up shortfalls in their pension provision.

Quarrell says: "I think people will have to work a lot longer in future. We have seen the Government proposing to push the retirement age to 65 and beyond. It may be the only way to build up enough money to provide for a reasonable retirement. I think we are going to see more pensioners stacking shelves in supermarkets just to make ends meet because the state will not be able to provide a big enough pension, and they will not have a large enough occupational scheme either."

Related links:

The National Association of Pension Funds

Professional Pensions (the newspaper for the UK pensions industry)

The BBC is not responsible for the content of external Internet sites


 WATCH/LISTEN
 ON THIS STORY
The Pensions Bubble
Sarah Powell reports on the dream of early retirement
The Pensions Bubble
Tim Hunt and Rob Barrowman discover what their pensions are worth

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