If you are saving for retirement with a workplace final salary pension, the odds of picking up your money are only evens if you belong to one of the weakest schemes, according to experts.
That means 3 million savers are at risk of losing some of their benefits when they give up work, regardless of how long or how much they have saved.
This shocking revelation comes from trade body the Pension and Lifetime Savings Association.
In a study looking at how to reform final salary pensions, the PLSA found three-quarters of companies face lots of challenges to bring their schemes into line.
Streamlining and superfunds
The PLSA is making three recommendations to the government to change the rules:
- To change the scheme’s chairman’s annual statement to improve standards
- To standardise and simplify benefits
- Grouping the weaker funds together into easier to manager superfunds
Ashok Gupta, Chair of the PLSA taskforce that drafted the report, said: “More than 11 million people rely on defined benefit pension schemes for some or all of their retirement income but there is a real possibility that without change we will see more high-profile company failures such as BHS or Tata Steel. It is vital that action is taken to address covenant risk, underfunding and the current lack of scale in most schemes.
“Our proposals have the potential to transform the industry – helping to ensure more members get their full benefits, reducing sector inefficiency, addressing the issue of stressed schemes and enabling sponsors to concentrate on growing their businesses. The industry and government need to grasp this opportunity and tackle serious flaws that threaten the security of people’s retirement.”
Bold and challenging
The report goes on to say that the nation’s 6,000 final salary pension schemes have tens of thousands of different benefit structures that are expensive to run and confusing for savers.
Superfunds, the study explained, would be collective pension schemes consolidated from smaller schemes that are hard to fund and costly to administer.
Graham Vidler, director of external affairs at the PLSA, said: “We asked the taskforce to be bold and challenge commonly-held perceptions. The report is proof that they have done just that. The UK’s 6,000 final salary schemes face 6,000 different challenges and the taskforce’s proposals create new options to tackle each of them.”