Up to 1.7 million workers’ pensions ‘at risk of cut’

Up to 1,000 company pension schemes face an uncertain future, it has been claimed.

Up to 1.7 million workers’ could face a cut in their retirement income because of financial pressure on their company’s pension schemes.

That’s according to Professor David Blake, director of the Pensions Institute at Cass Business School.

Writing in the Telegraph, he claimed as many as 1,000 schemes are “in a very precarious position with financially weak companies behind them or large deficits – sometimes both”.

He added that their members face “a real and current risk” that their companies will go under.

Should the worst happen, the pension funds will be transferred to the Pension Protection Fund (PPF).

This effectively works as a safety net for failed funds.

However, it doesn’t pay out the full amount workers were expected. More likely, they’ll get just 90%, or potentially even less depending if their pension pot is larger than average.

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Nothing new, but still worrying

Dire warnings about the state of company pensions is sadly nothing new.

For years people have been warning about desperate underfunding, especially those with a high number of employees on more generous final salary schemes.

It’s why we believe companies need to curb shareholder dividends to shore up their pension deficits.

Who might be at risk?

While there are a few high profile examples of funds with hefty deficits, it’s far harder to spot the vast majority of them.

So how do you know if your’s is safe? According to Professor Blake it is sometimes possible to spot them because they are backed by so-called ‘zombie’ companies.

“These firms just about manage to cover their current pension payments, but leave little or no cash for investment in the business.

“Listed zombie companies tend to have a large pension scheme deficit relative to their stock market value.

“If they have managed to raise any debt or equity finance over the previous five years, this money will have been used to keep the company afloat, rather than funding the pension scheme. 

He adds that companies in some sectors have a far higher percentage of zombies, adding: “Manufacturers, for example, may continue to make products that have been rendered obsolete by newer technology because they don’t have enough capital to change their business model."

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What can you do if you’re worried?

If you’re worried your pension scheme is at risk, Professor Blake suggest you could approach the schemes and pressure them to put more funding into the scheme.

Failing that, you could switch your benefits to a more secure scheme separate from the company, although he concedes you will likely have to accept a lower pay out.

Finally, you could consider cashing your pension in – which we’ve written more about over here.