How well protected are you if your pension scheme goes bust?


Not since the early years of the century has so much attention been paid to the solvency of our defined benefit pension schemes. The triple whammy of Tata Steel, BHS and Austin Reed’s schemes will potentially hit the Pension Protection Fund like asteroids pummelling the moon. Will these unwanted visitors just pock-mark the PPF or will their impact throw it off its access?

The pessimistic view!

The Pension Regulator reckons there is a total deficit of £322 bn deficits within our DB scheme. 17% of the 6000 schemes are basket cases which the Regulator doubt will ever become solvent. According to David Blake, who spoke in a gloomy way on MoneyBox, the PPF will have taken on £45bn  of these deficits within the next five years.

The crucial period between now and 2025 and with only £20bn in assets, Professor Blake was doubtful, the PPF would make it intact.

The optimistic view!

Alan Higham,  well know to this blog as our PensionChamp was more optimistic. He pointed to the PPF’s own assessment which reckons it has an 88% chance of making it to 2030 and  being able to pay full pensions without recourse to the bail-out levies it is currently getting from other schemes.

Alan, who was himself the architect of the Financial Assistance Scheme that was the emergency measure the Government established before the PPF hit its stride, spells out the options on Moneybox

He points out that the current rules for paying pensioners would only be changed- as the nuclear option. Were the PPF  not be able to cope, the first option would be to limit the increases in payment on PPF pensions and only when that wasn’t enough, would pensions be cut.


Why is there a problem and whose problem is it?

Both Higham and Blake were keen to distance themselves from Ian Hislop’s assertions on “Have I Got News for You”, that the tax-payer would be asked to bail out these pensioners. The tax-payer is not on the hook for these deficits , there is no “guarantee” in place.

There are three reasons for the deficits

  1. Too little has been contributed by employers and employees to fund these schemes
  2. The assets into which the money has invested , have not delivered the returns (and charges on the assets haven’t helped)
  3. Low interest rates have meant that guarantees on meeting liabilities have become increasingly expensive

A fourth reason, which may contribute to the problem in some cases, is poor management of the scheme, and poor oversite of that management.

This is a problem that sits with the pension schemes themselves, but since the launch of the Pension Protection Fund , the Pension Regulator has had powers to investigate companies who put paying the shareholders in front of paying.their pensioners.

So employers cannot shake off their pension responsibilities; and individual executives and shareholders such as Philip and Tina Green, may still be liable for some if not all of the deficit, even when the PPF has taken over the management of the assets and payment of the liabilities.

How can this be put right?

There isn’t space in this blog to look at the solutions. I will write later about two approaches which might work.

The first is to increase legislative power to increase the rights of pensioners and guarantee their payments.

The second is a more social solution, where society solves the problem by making the behaviours of those who avoid paying taxes in the regions where profits are earned, and take money out of companies which should be earmarked for pensioners- unacceptable.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to How well protected are you if your pension scheme goes bust?

  1. George Kirrin says:

    “Can the Trustees call upon Arcadia or Sir Philip Green for financial support? No, BHS is the sponsor in relation to the Scheme and the Trustees have no recourse to the assets of the Arcadia Group or Sir Philip Green or his family.”

    Source: a two-page flyer sent to BHS scheme members by THE TRUSTEES on 19 March 2015.

    What were they thinking?

  2. astute angle says:

    Part of Reason 1 is the ‘pensions holidays’ that many DB schemes had during the 1990’s.
    Reason 4: increased longevity of pensioners (and their respective spouses), of more than the 20 years beyond retirement that DB schemes tend to be based on.
    Reason 5 and partly linked to Reason 4 is that many of the ‘boomer’ generation were allowed to retire early with 40 years’ worth of contributions without having actually having paid that in. This is also partly linked to the misleading belief that pension schemes would always remain in surplus, viz Reason 1.

    As it is, the safest schemes are those where the assets of the company are greater than the liabilities; and those assets, which form part of our national infrastructure; wires, pipes, rails, may be sold on intact to a different owner, but are unlikely to be dug up and taken to a scrap dealer.

    • George Kirrin says:

      Everyone seems to want to focus on, and even add to, Reason 1.

      But I’d like to turn the spotlight on to Reason 2, that the assets into which the (arguably insufficient) contributions have been invested, have not delivered sufficient returns.

      As for Reason 4, increased longevity could be an opportunity to invest in income generating assets for longer. Not without risks, I admit, but few seemed willing to even consider this.

      While bonds did offer decent income returns in the earlier part of this history, the opportunities I’m referring to tend to be offered by investing in equities and rental property, not in bonds.

      • henry tapper says:

        George – on the first point, I think the Trustees have limited recourse, they have of course accepted all that has happened as it happened, they are of course being accused of being negligent but I think this is one for the Regulator.

        I hope that the Regulator and others will get money from Philip Green or Arcadia. We will have to wait and see.

        It is of course quite hard to liquidate assets like floating gin palaces- I rather wish we could return to the days of Francis Drake – but we can’t!

        As I’ve written elsewhere, the answers lie in making what Green and others do , so unacceptable, that when they try to do it, they are stopped. This is a cultural issue and requires a social contract which may be in place in Holland but isn’t in place here.

        The alternative is the kind of lock down that John Ralfe would impose.

  3. Colin Meech says:

    Legislate to scale up the funds, create in-house management – enforce transparency of costs, review asset strategy and go passive – chuck out PE and Hedge funds. If your fund is not at optimum efficiency you must merge the assets into industry funds. Put in place more effective fiduciary obligations and create a fiduciary training centre for trustees.

  4. henry tapper says:

    Thanks Colin

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