Cash for pensions

The latest estimates of the black holes in British company pension schemes make for depressing reading, said The Wall Street Journal. According to the consultancy firm Mercer, companies in the FTSE 350 had a combined deficit of £64bn in 2010. But, despite paying an estimated £75bn into plans since then, that gap has now widened to £98bn. Talk about a “financial puzzler”, said Alistair Osborne in The Times. Clearly, the FTSE 350 “is fighting a losing battle in this low-interest world where people obstinately keep living longer” – and Mercer predicts things “are likely to get worse”. Investors should be asking one question of any company with a defined benefit scheme: “What about a buyout deal to remove the risk?”

Many companies are already taking active steps to de-risk, said Josephine Cumbo in the FT. According to financial advisors, several have made “breathtaking” offers to employees to cash in final salary pensions – dangling lump sums of more than 30 times expected annual pension income. “The transfer offers being made are some of the highest we’ve ever seen,” said James Baxter of Tideway Wealth. Yet for some, the trend rings warning bells. “People are being seduced by cash,” said Leon Buckley of Tilney Bestinvest. “There’s the risk of another scandal here if people wake up in ten years and realise they would have been better off keeping their pension.”