MPs Take Firms To Task Over Pension Black Holes

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Transferring out of a final salary pension is becoming a retirement option for some savers as companies struggle with massive pension deficits.

Many companies are crippled by black holes in their pensions.

A select committee of MPs is demanding bosses at some of Britain’s leading FTSE 100 companies explain why they owe billions to their pension funds.

The committee is looking at companies with pension funds in crisis compared to their market value.

Defence contractor BAE Systems tops the list with a £5.4 billion deficit – a third of the company’s market capitalisation of £15 billion.

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Big firms crippled by deficits

More than 125,000 pensioners and workers are in the scheme.

BT has a £7 billion black hole that is almost 25% of the firm’s £30 billion market value.

Close to 310,000 pensioners and workers rely on the BT pension fund.

Tesco has a £3.2 billion pension debt against a valuation of £26.5 billion. The scheme has 350,000 members.

If any of these companies follow British Home Stores (BHS) into the Pension Protection Fund to safeguard member rights, tens of thousands will see a 10% cut in retirement income.

Andrew Tully, a director at financial advice firm Retirement Advantage suggests transferring out of a final salary scheme is no longer a taboo for workers.

He agrees with the Financial Conduct Authority (FCA) that in most cases a worker is better off staying in a final salary scheme, but argues there are some scenarios in which a transfer to a direct contribution scheme may be beneficial.

Switch to a QROPS

“Yield is the critical factor as some of these savers have years to go before retirement,” said Tully.

“Yield shows what investment level is needed to match the benefits when comparing pensions.

“Any failings in the employer scheme should also be considered because these can also impact on the yield.”

What happens to the pension on the death of the saver and the tax a family might pay on inheriting a pension is also a point to consider.

Final salary pensions can transfer into another UK pension, such as a SIPP, or an offshore pension, like a Qualifying Recognised Overseas Pension Scheme (QROPS).

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