Pensions suffer Budget deficit
Tuesday 05 May 1998
Leading actuaries Bacon & Woodrow said the July Budget had caused changes to dividend payouts which put 26 per cent of company pension schemes in danger of busting a key legal safeguard.
The safeguard, known as the minimum funding requirement (MFR), is "falling apart at the seams," according to Bacon & Woodrow. The requirement is designed to protect members from a repeat of the Maxwell affair. It sets a minimum level of funding needed to meet liabilities to members.
It depends crucially on the dividends which schemes can expect to receive. If the dividends slow down or fall, liabilities rise, forcing companies to pour in millions of pounds to top up their pension schemes.
If the worst warnings are correct, a quarter of all pension schemes will be underfunded, obliging finance directors to pour extra money in.
Penny Webster, a pensions expert at Bacon & Woodrow, said: "Companies weren't expecting anything quite this nasty to happen. If we are in a position where a quarter of schemes are below [the MFR] that is pretty serious.
"What is really bad about this is that a company can be quite prudent and want to protect members' interests. But they still potentially have to put in lots of money because the standard has been fudged."
The Institute of Actuaries said changes in companies' dividend policies - caused by the July Budget - have driven down the returns pension schemes can expect. That has driven up pension liabilities by more than 50 per cent, quadrupling the number who may fall outside the law.
Harvie Brown, the leading expert on pensions at the Institute & Faculty of Actuaries, said: "Companies used to use dividends to reward their shareholders. But now dividends are taxed they are finding other ways to reward their shareholders - such as buy-backs. Dividend yields have gone down and the contributions will have to increase."
Industry sources said the problem has been aggravated by squabbles between Government departments. Since the axing of dividend tax credits, the Treasury has insisted that pension funds will be unaffected.
Ministers at the Department of Social Security are being pressured to change the way the legal minimum is worked out to reflect lower dividends. But this would force the Government into an admission that the Budget had an impact on pension fund returns.
Swedish stars ask fans for £195 pledges on crowd-funding website
filmFilm producers sue Warner Bros for $75m over Hobbit films
musicThe 21-year-old beat Ella Eyre and Chlöe Howl to win the honour
lifeFull of the joys and want to help your fellow man? December isn't the time to do it
techLuke Blackall reports on precision engineered prams and babygros that monitor your child 24-7
- 1 Nelson Mandela memorial: ‘Bogus’ interpreter made mockery of Barack Obama’s tribute
- 3 Kenyan politician Mike Sonko left red-faced after photoshopping himself next to Nelson Mandela
- 5 Selfie at funeral: Cameron squeezes in on Obama snap at Mandela memorial
- < Previous
- Next >
iJobs Money & Business
£77099.84 - £96375.26 per annum + Bonus + Benefits : Harrington Starr: My clie...
£45000 - £60000 per annum + Bonus and Package: Harrington Starr: Trading appli...
£50000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...
£70000 - £90000 per annum + BONUS + BENEFITS: Harrington Starr: A leading mark...