Final Salary Pensions May Be Cut
There are millions of people in the United Kingdom that may find that they will have to take a cut in their “final salary” pensions in the near future. Plans have now emerged in order to save small funds which are struggling, which has resulted in these extreme plans, which could effect millions on workers in the long run.
It has been years where companies that provide final salary pensions to employees have struggled to keep funded. These pensions are determined on the salary of the employee and how long they were with the company.
There are many employees who have been given an alternative offer by their employees and rather than taking their final salary pensions, they have accepted lump sums, some of which are up to forty times the size of regular annual pensions.
The government is trying to assist companies by easing the burden and cut pensions. They are reforming the system to change the way systems were set up initially to help companies remain flush moving forward.
One way companies could save billions is to freeze pension payments without staying up to date with inflation. Today it is estimated that there is only a fifty percent change that the weakest of schemes will be able to pay members in full. This is something that needs to be seriously thought about by companies and employees.
The rules are different for each scheme. Some have their payments increased by consumer price index while others are increased by the retail price index. CPI is lower and the government is trying to give trustees the permission to override these rules to stop them using CPI moving forward.
This minor change of changing from CPI to RPI could result in thousands of pensioners receiving less money when it's their time to retire. Many private sector final salary schemes have already been closed to new staff in order to help the company to sustain the demand on them in the future. Public sector workers all have the right to join this scheme.
On average there is approximately six thousand final salary schemes available in the United Kingdom, the majority of which are poorly run, which is why the idea of super funds being introduced could be the answer that employers are looking for.
The focus of the super fund would be offered by the Pension Protection Fund and it will guarantee pensions that are promised by companies that have failed. It does come with caps that you need to be aware of, the one is the overall cap will be approximately £38,000.
For more information or further advice, please contact our team or visit http://www.pws-intl.com/ today.