How safe is your final salary occupational pension scheme?
For years, people assumed the answer was that – extreme fraud cases excepted – the answer was pretty secure. Then companies started going bust and thousands of people discovered there were shortfalls in their schemes that would leave them out of pocket.
The answer was supposed to be the Pension Protection Fund, set up to intervene in such circumstances. But the PPF itself may not be so secure.
Yesterday, the Conservatives said they did not believe the government should rescue the scheme if calls on its resources prove too great. That’s effectively the policy of the current administration too, though it doesn’t put it quite so starkly.
In practice, that means that were one or more large companies to fail, savers might not be fully compensated. The PPF already has a funding hole of £1bn, though it has plans in place to eradicate the shortfall. But if a company such as British Airways, which has a pension scheme deficit of nearly £4bn, should go under, the scheme would be overwhelmed.
Final salary schemes are disappearing, but hundreds of thousands of savers are still owed benefits by the plans. They may not be able to sleep safely.