Final salary pension shock for 3m workers

THREE million workers with final salary pensions have a 50 per cent chance of losing a fifth of their income because employers have made unaffordable promises, a report has warned.

A growing number of employers who have offered staff so-called “final salary” pension schemes are coming under extreme pressure to meet their obligations, the Pensions and Lifetime Savings Association said.

This is down to a range of factors including people living longer than expected, making guaranteed pensions more expensive.

Companies who find they cannot afford to pay the pensions they have promised staff are rescued by a lifeboat service called the Pension Protection Fund. Workers whose pensions are taken over by the fund are still paid, however, the amount they receive can be up to a fifth lower than what they were promised.

Recent high-profile cases of doomed schemes, such as the BHS collapse, have highlighted concerns over the future of workplace pensions.

The PLSA said one solution could be the pooling of resources into “superfunds”, to give pension schemes the best chance of survival.

Its analysis showed the most vulnerable employers have a 50:50 chance of not having an insolvency event over the next 30 years.

A spokesman for The Pensions Regulator said: “We are clear that while the majority of defined benefit schemes remain affordable, many should do more to tackle increased deficits and reduce risk to pensioners.”