Charlie Weston

We won’t enjoy same benefits as baby boomers

WHEN it comes to pensions outside of those in the public sector, there is rarely any good news.

The latest analysis for private sector schemes, and those in the semi-state sector, is quite frankly depressing. Deficits in the State’s largest pension schemes have ballooned. And this is after companies have stuffed an extra €10bn into these schemes in the past six years, at a time when stock market returns have been scintillating. The bottom line is that old-style company pensions have become impossible to fund.

Medical improvements have resulted in people living much longer. This means that definedbenefit schemes are being asked to do more than was ever envisaged when many of them were set up decades ago.

Traditional DB schemes were the mainstays of company retirement provision. These are where people get a set level of pensions based on their years of service. Those with a full 40 years of service get two-thirds of their final salary. Pension accounting rules dictate the liabilities, or costs, of a pension scheme have to be expressed with reference to bond yields.

As interest rates are at historically low levels, bonds are earning little. But trustees have to work out what it would cost to buy an annuity, or income for life in retirement, for people if the scheme was to close. Annuities have become hugely expensive because of the low bond yields.

Companies have been reacting to this by shutting schemes. Others have cut the pension benefits, and encouraged members to take their pension pots out of scheme.

This explains why half of DB schemes have been shut down since the financial crash, taking the total down to around 650. More will follow as many schemes still in existence are in the process of winding up.

So those in work now should get used to working longer.

The baby boomers currently in retirement are benefiting from good pensions. Their sons and daughters will not be so lucky.