How savers pay the price

WHILE Carillion employees and subcontractors are left reeling in the wake of the company’s financial meltdown, innocent savers up and down the country will also take a hit.

Carillion’s pension fund, with 28,500 members and a black hole of £2.6 billion, is the biggest so far to be rescued by the industry lifeboat, the Pension Protection Fund.

The PPF takes over the final- salary schemes from companies that have gone bust and which can’t meet the promises made to workers who have loyally saved for decades.

The money for these comes from a pot of cash that the PPF has acquired by charging a levy on final-salary schemes that are still up and running. Last year it collected £550 million.

But this is not a bill on anonymous pension funds – this comes from the pockets of savers, because it’s their retirement pots that have to pay. Perversely, the higher the fees to run the PPF, the more strain on other pension funds. Every penny to run a final-salary pension comes from cash that would otherwise be used to boost savers’ returns.

The more pension schemes that go bust, the more the healthier schemes are forced to subsidise them.

This in turn can put the previously solvent schemes under pressure and push more of them to the brink.

In all, there are 3,663 pension schemes with a black hole in the UK – more than two in three of all final-salary schemes – and in total they owe £197 billion.

Rock-bottom bond rates (caused by the Government’s quantitative easing programme), increased life expectancy, actuaries who failed to predict population changes and shocking mis-management by executives over decades have led to this parlous position.

But it’s now being compounded by rogue company directors who have been allowed to buy failing companies on the cheap and then cynically dump the indebted pension scheme on to the PPF.

In addition, some of the UK’s biggest firms continue to pay giant dividends to shareholders while failing to get on top of multi-billion-pound black holes in their own schemes.

The Pension Protection Fund is a crucial safety net for the retirements of millions of savers – but its very existence is allowing bosses to abandon the promises they made to loyal staff.

So when one rogue boss walks away from his pension responsibilities, it affects every saver with a final-salary pot. And as usual, it’s those who have been the most prudent who have to pay.