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The Future Challenge of UK Pension Funds: Addressing Growing Deficits and Retirement Age Adjustments

The UK pension landscape faces significant challenges, primarily driven by rising deficits among key occupational pension schemes. A recent NAPF survey indicated that 80% of companies still offering final salary schemes plan to close them to new members within five years. In the public sector, the Turner Commission recommends raising the retirement age beyond 65, amidst government proposals to withdraw final salary schemes. The Royal Mail, with a significant pension deficit of £4.26bn, illustrates the pressing need for reform to secure future pensions and address financial sustainability.

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The Future Challenge of UK Pension Funds: Addressing Growing Deficits and Retirement Age Adjustments

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  1. The Future Challenge on Pensions

  2. UK Pension Funds • PENSION FUND DEFICITS • FRS 17

  3. UK Occupational Pension Scheme Funding Crisis • Top 5 (FRS 17) reported deficits 2005 • BT £5.14bn • BAE £4.33bn • Lloyds TSB £3.19bn • RBS £2.85bn • Uniliver £2.8bn • FT350 Companies (FRS 17) deficit £93 bn l

  4. Future Threat Recent NAPF survey found 80% of Companies who still offer Final Salary Schemes are planning to close them to new members within the next five years l

  5. Retirement Age – Public Sector “Turner” Commission calls for increase in retirement age beyond 65 Age 67 being recommended Change in Legislation October 2006 l

  6. Public Sector • Public Sector Pensions under attack • Government propose to withdraw final salary scheme – introduce retirement age of 65 • Agreement to maintain age 60 retirement for existing civil servants • Move to an average earnings scheme arrangement • Introduce flexibility when pension can be taken Royal Mail is in this mix !! l

  7. Royal Mail FundSome Facts • Royal Mail Accounts deficit £4.26bn FRS17 • Scheme (Actuary) deficit £2.56bn (2003) l

  8. Value of assets at today’s date £20bn • Value of liabilities at today’s date £21.5bn l

  9. Royal Mail Fund Royal Mail’s contribution last five years • 2000 = £135m • 2001 = £201.9m • 2002 = £222.9m • 2003 = £248.4m • 2004 = £647.9m • 2005 = £670m Total£2.12bn l

  10. Contribution and Mortality • Contributions Employer – 12.6% Employee – 6% • Mortality Royal Mail Pension Plan 1991/94 Age 79 2003/05 Age 82.5 • 2006 Valuation Mortality rate will have effect on scheme funding l

  11. Postcomm - Pension • On-going pension contribution.13.8% of pensionable pay • Funding of deficit £274m (03/04) up rated in line with RPI £296m (06/07) Deficit paid over 17 years • Total deficit to whole of Royal Mail group £370m (06/07) • Postcomm allowed £700m to deal with mortality increase l

  12. CWU Policy • Maintain Final Salary Scheme • Remove lower earning deduction £3328 • Maintain retirement age 60 l

  13. Summary • Maintain Final Salary Scheme • Retirement Age • Lower Earning Deduction • RM Scheme in Deficit l

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