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£65bn wiped off value of company pension schemes
Joe Murphy, Political Editor31 Dec 2008
COMPANY pensions have taken a massive hit in the recession, with billions of pounds wiped off the value of schemes to support retiring employees.
Research found that the average pension scheme of FTSE 100 companies shrank by 17 per cent in 2008, obliterating £65 billion at a stroke.
It leaves the big firms nursing a pension fund deficit totalling £130billion and puts a question mark over the retirement incomes of employees whose payouts are not guaranteed. At the same time, government ministers are said to be enjoying a boom in the value of their own pension arrangements, funded by the taxpayer.
According to figures compiled by Liberal Democrats, the Prime Minister's £19,000 a year on top of his MP's pension is equivalent to a personal pension pot of £274,000. Justice Secretary Jack Straw's "pot" is worth £294,000, paying out some £20,520 a year on top of his parliamentary pension.
Altogether, ministers are sitting on pensions worth £7.5 million, up by double the rate of inflation, according to Liberal Democrat peer Lord Oakeshott.
By contrast, the average private sector fund is worth £25,000 and after recent equity falls generates an income of around £1,600 a year.
Ministers contribute to their pension funds, but the largest contribution is from the Treasury, which pays 26.8 per cent of a minister's salary into the fund.
Analysts are worried about the growing gap between pensions in the private and public sector.
Employees of firms have little access to salary-based schemes and many will be expected to work beyond 65 in the future. But public sector employees have clung on to retirement at 60 with taxpayer-funded schemes.
The figures show senior civil servants are enjoying big pension funds, too. Leigh Lewis, the senior civil servant at the Department of Work and Pensions, saw his pension pot rise by £314,000 from £1,567,000 to £1,881,000.
The fall in the value of FTSE 100 pension schemes was revealed by research from Deloitte. Pensions partner David Robbins said: "The prospect of low or negative economic growth can depress the price of assets such as equities and property that pension schemes have typically invested in."
Company final salary pension schemes have been in steep decline for the past decade and figures show the cost of public sector pensions is ballooning. Earlier this month the Confederation of British Industry called for an independent commission to examine the £1 trillion cost, which was branded a "growing" burden on future taxpayers.
● Thousands of elderly people in care are being given a spending money increase of just 75p this year. They will be allowed pocket money from the Government of £21.90 to pay for clothes, toiletries, books, phone calls and treats. At present it is £21.15.
Age Concern said the rise was "Scrooge-worthy" and "barely enough to buy a packet of biscuits".
Reader views (3)
"puts a question mark over the retirement incomes of employees whose payouts are not guaranteed"
Are you talking about employees with defined benefit (e.g. final salary) pensions or those with defined contribution (aka money purchase) pensions?
If the former, then don't forget the partial guarantee provided by the Pension Protection Fund (unless you're really pessimistic and think this could fail and the government wouldn't bail it out).
If the latter, then I'd suggest people need to understand that shares are inherently volatile -- sometimes excessively so. If you're not about to retire, then you shouldn't be worrying about the fall in share prices. (Unless, of course, you think capitalism is completely and irreparably broken.)
- Richard Hancock, Bracknell, UK, 31/12/2008 14:19
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Ah the financial genius of Gorden Brown... It is always nice inheriting a well funded system but not nice to go out on the biggest recession and to have NOTHING left!!
- Jacqueline, Hampstead, London, 31/12/2008 12:41
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Given the tinkering with the pension system since 1997, companies will be expected to make up the shortfall whilst their profits evaporate.
So now many will have neither a job or a pension. Thanks Tony, Gordon and Co.
- Dave Davies, Basingstoke, 31/12/2008 10:55
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