Workers likely to face problems with final salary pension schemes

A number of leading associations are warning that members of final salary pension schemes could face problems in the future.

Amongst those issuing warnings is the powerful pensions body, the Pension and Lifetime Savings Association (PLSA), which has said that around three million workers with final salary pension schemes have just a 50:50 chance of getting a full pay out.

According to the PLSA, increasing life expectancy, low interest rates and weaker investment returns have seen the total deficit for final salary pension schemes grow to more than £400 billion.

It said that “while most schemes will be able to reach a sustainable funding position by drawing on their resources and the financial strength of their sponsoring employer, this won’t be the case for all schemes.”

Meanwhile, the Financial Conduct Authority (FCA) has issued warnings to those looking to transfer generous final salary pensions in later life.

It has uncovered a series of failings in the advice provided to savers, which included cases where savers were at risk of moving pensions to scam schemes.

The FCA said that among the 88 transfers it had reviewed, 47 per cent of recommendations were suitable, but 17 per cent were unsuitable and in 36 per cent of cases they were neither suitable or unsuitable.

When it came to the investment products or funds that savers were recommended to transfer to, it also found that 35 per cent were suitable, but 24 per cent were not and in 40 per cent of cases it was once again unclear whether they were truly suitable.

It is calling on those looking to transfer final salary schemes to look for experienced independent advice, pointing out that savers should check that financial advisers have the necessary skills to handle pension transfers or are using a reputable specialist transfer firm to avoid their money being mismanaged.

LINK: PLSA Report on Defined Benefit Pensions