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2017 Will Be a Difficult Year for Final Salary Pensions in the UK

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The Pension Protection Fund (PPF) has completed its assessment of the industry and revealed that 2017 will be a ‘tough’ year for final salary pensions. The UK has a substantial pension deficit, with final pension schemes or career average schemes being the most challenging facet. Pensioners were already set for difficulties following the collapse of BHS, and the £571 million deficit it left in its wake, and the growing concern for workers in the steel industry, which also has a deficit of over £700 million. The situation could get worse given the outcome of the Brexit vote and the falling value of the pound. “When we look back at what progress schemes have made over the last decade, it appears that many schemes are just treading water,” said Andrew McKinnon, chief financial officer for the PPF.

“The average recovery plan length, at around eight years, has barely improved, which brings home the challenge we now face. The current economic backdrop, as well as scrutiny faced by the entire industry, suggests conditions will remain tough in 2017.”

The deficit accrued by the 5,794 defined benefit pension schemes at the end of March 2016 was £221.7 billion. The major challenges being faced by the industry are the increased lifespan of pensioners, meaning the amount being paid is more, and the low returns on investments. As a means of reducing risks, pension schemes have invested heavily in government bonds, while some are investing in foreign countries.