For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails
Sign up to our free breaking news emails
British workers are each being paid around £200 less per year because employers are pumping billions into defined benefit pension schemes.
Young people and low earners, who are least likely to gain from the generous schemes, are suffering the most in order to subsidise older generations, think tank the Resolution Foundation said in research published on Monday.
UK firms spent roughly £24bn trying to plug their deficits last year, reducing wages by around £2bn overall, the research showed.
“The UK’s youngest and lowest earners are suffering an additional pay penalty as a result of DB deficit payments that have no benefit to them,” the Resolution Foundation said.
Increased longevity and poor investment returns have significantly increased estimated holes in pension schemes in recent years.
The total gap between the amount companies’ pension funds expect to pay out and what they will have available to make the payments is now thought to be around £500bn, though the amount fluctuates based on predicted investment returns and other factors.
The researchers predict that pension payments will act as a drag on pay for the foreseeable future because the current deficit is so large and people will continue to live longer.
The Resolution Foundation sought to explain why wage increases had already slowed before the financial crisis, from 2.4 per cent per year between 1996 and 2004, to just 0.5 per cent between 2004 and 2008.
It found that some of this slowdown was due to increased contributions towards pensions, while lacklustre growth in productivity and the fact that people were working fewer hours on average were also factors.
Matt Whittaker, chief economist at the Resolution Foundation, said: “Our research shows for the first time that there is indeed a link between rising pension deficit payments since the turn of the century and reduced pay.
Business news: In pictures
Show all 13
“The scale of increased deficit payments reduced workers’ wages by around £2bn last year, with workers in affected firms losing out on £200 on average.”
The report comes as part of a series looking at intergenerational fairness. Previous work has shown that younger people have been disproportionately affected by stagnating wages since the crisis.
Many people have not seen any benefits from the anaemic recovery from the financial crisis. Average earnings still remain £16 below their peak and new official figures last week showed that real wages are again falling as inflation picks up, thanks in large part to the weakened pound. Sterling is down 13 per cent against the dollar since the Brexit vote last June.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies