Based on recent surveys on various pension schemes in the UK, a worrying trend is developing. This is the increase in deficits faced by some of the biggest companies in the UK in their Defined Benefit Pensions.
Based on reports, this deficit skyrocketed to about £460 Billion as of September 2017. This figure, however, dropped to £410 Billion at end October, of the same year. Let’s take a look at some of the schemes just to highlight how this deficit is widespread.
Universities Superannuation Scheme (USS)
This pension scheme for the UK’s University Sector is probably one of the most hit by the increasing gap in the values of assets and liabilities. As of the month of July 2017, this deficit had soared to £17.5 Billion. With this representing an increase of £9 Billion in a one-year period.
With such staggering figures, it is the largest deficit on record in the UK. In effect, more pressure is put on the shaky higher education finances.
With members in excess of 390,000, the USS recorded total liabilities of £77.5 Billion as at March. Of more concern is that this dwarfs the assets values which stood at £60 Billion.
If immediate measures are not taken to sort out the ballooning deficit, members might be required to increase their retirement contributions. Or, University fees will have to be increased. All these have a very high likelihood of being met with astute resistance.
Defined Benefit Pension Schemes
The DB pension is an old styled pension scheme in which a formula is used to calculate your retirement packages and benefits. The formula used takes into consideration your salary history and the service years in the company offering it.
Simply put, the higher your salary is and the longer you stay in the company, the more the pension you will be paid.
A survey carried out by LCP on the FTSE 100 index in London as at June 2017 showed that these companies had a combined deficit of £17 Billion in their DB pension schemes. This survey was carried out on 89 of the 100 companies which have this scheme.
Just to sample a few of these companies, Royal Dutch Shell had their deficit grow to £6.9 billion in the year 2016. This is from £2.9 billion in 2015. Another company, BP had its deficit stood at £6.7 billion.
However, there is some good news as some of the companies reported reduced deficits over the one-year period. BT reduced its deficit to £6.4 billion from £7.6 billion. Its counterparts, Tesco reduced it’s from £4.8 billion to about £3.2 billion.
If you would like to find out more, get in touch with one of our pension consultants.