Source: Marilyn Mifsud LL.D¸ PKF Malta¸ May 2013
In the UK a lot of legislative amendments have recently been reported in the pensions sector¸ headlined by the Pensions Minister speaking of saving ‘definite benefit’ pension schemes as being as hopeless a feat as applying electrodes to corpses in a recent press release. In this context increased life expectancy can be seen factored into the causation list for the demise of such pension schemes resulting in a heightened expense to honour such pension payments when the same are due. With a reported pension deficit of up to £257 bn¸ the foresight in all this points towards companies opting for defined contribution schemes as opposed to definite benefit ones¸ where the former introduce a risk on return element invariably into the equation by virtue of a dependency on the positive performance of the pertaining investments. Applying the Aristotelian ‘in medio stat virtus’ approach¸ UK Pension Minister Steve Webb has endorsed ‘defined ambition’ pension schemes that would seek a middle ground in terms of achieving a balance between risk and return¸ however people within the industry have privately criticized this as unlikely to succeed.
Increased life expectancy is not alone in its causation of the definite pension demise as it is flanked by other contributing factors such as a negative fund performance as well as a significant decrease in ‘gilt yields’ that would otherwise therefore have acted to guarantee dividends and interest in bearing a strong consistency record that is at present waning.
An insightful quote amidst the above is that “the world has changed from the traditional paternalistic model of a job for life¸ with a final salary pension thrown in at the end”[1]¸ addressing an exodus in progress¸ moving away from the under-writing of open-ended guarantees to modes that will better complement the realities that the new flat-rate state pension will herald in come 2016.
Among names of companies expressing an intention to close down their pension schemes was DHL which caused quite a stir in the news briefs. Their position statement was not without provision for future thought where again the ‘times have changed’ undertone rings clear in the intended promulgation of an “attractive but sustainable alternative for future service”.
The pessimism has infiltrated well beyond the UK to the grasps of jurisdictions such as France¸ Germany and even Spain¸ however by contrast¸ the sleeping giant of the Far East seems confident that its Chinese slumber will remain unperturbed come retirement days¸ which they are additionally confident to succeed in facing early and in good health[2].
The pension debacle would not be complete if acknowledgement was not given to the recently uncovered pension scheme fraud dubbed ‘the new boiler room fraud<a href=”#_ftn3″ title