Pension Protection Fund forecasts difficult conditions for final salary schemes

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Final salary pension schemes are facing tough conditions in the year ahead, according to a lifeboat scheme for the sector.

The Pension Protection Fund (PPF) published data looking at the risks faced by defined benefit (DB) pension schemes - which are often described as "gold plated" because they provide people with certain guaranteed levels of income, such as final salary or career average pensions.

DB schemes are seen as expensive for firms to run, as people are living for longer and firms, rather than employees, bear the risks that investments may not perform as well as hoped.    

The PPF acts as a lifeboat by paying compensation to members of DB schemes when firms go bust and their schemes can no longer afford to pay a promised pension. 

Andrew McKinnon, chief financial officer of the PPF, said that while scheme funding has remained largely stable in the year to March "there have been large swings in funding since June".

He said: "When we look back at what progress schemes have made over the last decade it appears that many schemes are just treading water."

Mr McKinnon continued: "The current economic backdrop, as well as scrutiny faced by the entire industry, suggests conditions will remain tough in 2017."

The PPF released figures showing that the collective deficit of 5,794 DB pension schemes was £221.7 billion at the end of March 2016, which the PPF said was a slight fall compared with a year earlier.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "The relationship between employers and the UK pension system has changed significantly in the past 10 years.

"Pension schemes used to be owners of UK companies as well as being funded by them. Now, the bulk of scheme assets are invested overseas or in bonds."