Millions of savers 'only have 50-50 chance of receiving their full pension benefits'

Three million pension savers in defined benefit (DB) schemes only have a 50-50 chance of receiving their full benefits, a report warns.

Despite employers pumping in £120 billion over the last 10 years in special contributions, scheme deficits have remained at over £400 billion, the Pensions and Lifetime Savings Association (PLSA) said.

While most schemes will be able to reach a sustainable funding position, this will not be the case for all schemes, the report warned.

It said many employer covenants (employers' ability to meet their obligations) are under pressure and three million members in the weakest schemes only have a 50-50 chance of receiving their full benefits.

Cases such as the collapse of BHS have helped to put pensions under the spotlight.

Ashok Gupta, chairman of the PLSA DB task force, warned that without change there is a "real possibility" of more high-profile company failures.

He said more than 11 million people across the UK rely on DB pension schemes for some or all of their retirement income.

DB schemes, which promise savers a certain level of income when they retire, have become increasingly rare in recent years as firms have found them expensive to run as people live for longer.

The report suggested improving efficiency by making it easier to standardise and simplify costly-to-administer benefits.

It said the UK's 6,000 DB schemes manage tens of thousands of different benefit structures.

Schemes could transfer into newly created "superfunds", it suggested.

Trustees and employers would need to jointly agree to transfer their scheme including all assets and liabilities into the superfund, with employers paying a fee upon entry to reduce scheme underfunding.

Superfunds would aim to pay members the full value of their benefits in more than 90% of scenarios.

The transfer would only take place if trustees had assessed the new arrangements and agreed that they are beneficial to members.

Graham Vidler, director of external affairs at the PLSA, said: "The task force's analysis of a potential superfund framework moves forward significantly the case for considering how employers can be enabled to swap covenants for cash."

Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said high-profile cases involving pensions "are only the tip of the iceberg".

He said: "If schemes can be consolidated in a way which provides better value for money, reduced pressure on employers and an increased chance of pensions being paid, this could be a real step forward."

How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to - because while baby boomers know how to have fun - they also know how to save for the future.


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