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Employee Benefits News

Latest News
20 May 2013

Pension Minister Warns Of Final Salary Schemes Demise

There are only 12 months left to save final salary schemes, but it may already be too late, according to pension minister Steve Webb, who addressed the UK pension industry in a speech last week. However, he also noted that at least some of the defined benefit schemes could be rescued but it has to happen now, as there are several pension reforms ready to take effect, the Guardian reported.

Recent research from the Pension Protection Fund revealed that 5,142 out of the existing 6,316 final salary schemes in the UK private sector are in deficit, meaning that they owe more to future pensioners than the total value of their assets. While this type of pension scheme is more common in the public sector, they used to be a popular option for the private sector as well.

What makes them different from the other common type of schemes - defined contribution schemes - is the fact that the risk of the investment is taken by the company, not the saver. By contrast, in defined contribution pension schemes it is the saver who takes the risk, as there is no guarantee that the pension pot will end up with as high a value as they had planned.

Workers saving in a defined contribution scheme are advised to get an annuity quote to check what they might get in the future and to make changes to their savings strategy if necessary, the Guardian said.

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