The scale of the UK’s pensions crisis is worse than originally feared, with retirement provision facing a “perfect storm”, a thinktank warned.

The Policy Exchange also claimed that the Government lacked ambition in its pensions reforms, with serial changes to the state pension system having no real impact.

It warned that over-regulation, rising life expectancy and higher costs had combined to produce a perfect storm in pensions.

The group said Britain had once had an enviable reputation for high-quality pensions, but occupational schemes had been in decline for years.

It said just 15% of private sector employees were now members of defined benefit schemes, such as final salary pensions, and just 4% of people belonged to schemes that were still open to new members.

Less than one in four UK workers now have a private pension as their main additional source of retirement income to the basic state pension, down from 39% in 1991/1992.

The research added that group personal pensions, had contribution levels which were around a third of those paid into final salary schemes, at just 9.9%, compared with 28.7% for final salary pensions.

At the same time it said the state pension system, which it claimed was already the most complicated in the world, was set to become even more complex in future.

The Policy Exchange also warned that public sector pensions, which are generally still the more generous final salary schemes, were growing in size and cost, with the annual charge to the taxpayer set to soar by 33% by the 2030s from 1.5% of GDP to more than 2%.

Principle author of the report Nicholas Hillman said: “Some of the Government’s reforms offer an improvement on the status quo. But they will make little difference to pensioners’ incomes overall. There is next to nothing to encourage employers to provide generous pensions and personal accounts are a disaster waiting to happen because the implementation risks are so enormous.”

http://money.aol.co.uk/pensions/pensions-crisis-worse-than-feared/article/20080302023409990002

Red red wine, stay close to me now. All i can do i’ve done, but memories won’t go, no memories won’t go.

The UK’s largest pension schemes have plunged deep into the red as a result of the credit crunch and market volatility, a report has indicated.

Retirement plan funding for FTSE 100 companies showed a deficit of £41 billion in mid July compared to a £12 billion surplus a year earlier, according to figures from consultancy firm Lane Clark & Peacock (LCP).

Leading pension experts said the re-emergence of a sizeable black hole marked a nail in the coffin for generous schemes and predicted the end of final salary pensions in the private sector.

LCP’s 2008 Accounting for Pensions report puts the swing into the red down to a combination of equity market volatility, rises in expected inflation and the credit crunch.

As a result, funding levels have seen their largest slump since the introduction of modern accounting methods in 2002.

Bob Scott, partner at LCP, said: “UK pension schemes of FTSE 100 companies enjoyed a brief period of surplus until early in 2008. Some companies chose to spend their surpluses on various forms of de-risking activity including buy-out, purchasing financial swaps and reducing their exposure to equities.

Events of the last year demonstrate the importance of assessing and managing pension risks and being prepared to take opportunities when they present themselves.

Research shows that at a time when British businesses are feeling the pinch, contributions to schemes have fallen from £13.4 billion to £13.1 billion over the year.

Separate figures released by consultancy firm Mercer found that for FTSE 350 companies, the pensions deficit stood at £47 billion at the end of June compared to a £14 billion surplus in March.

Ros Altmann, pensions consultant and former Downing Street advisor, said the growing black hole would result in companies shutting more generous final salary schemes. She said: “It is inevitable that employers will keep on closing schemes to both new and existing members, especially in the face of so much uncertainty around funding and costs. This is the final chapter. Final salary pensions promise will soon be a thing of the past for private sector workers.”

http://money.aol.co.uk/pensions/warning-over-pensions-black-hole/article/20080806021409990001?country=uk

One in 20 people with a public service pension could find future payments cut next year.

Hundreds of thousands of former service personnel and NHS staff have apparently been overpaid their pensions for “decades”, according to Liberal Democrat Vince Cable.

Mr Cable said the error had only just been discovered and he had been asked by the head of the civil service not to publicise it for several days.

In a brief intervention, Chancellor Alistair Darling said: “You were asking about repayments of money that has been overpaid — I’d think it’d be better I make it clear that isn’t going to happen.

It will be necessary to adjust what’s paid for the future. It does need to be put right from next year. There will be a statement tomorrow from the Cabinet Office.

Mr Cable disclosed the error during debate on the Queen’s Speech after he was given a tip-off.

He said that Xafinity Paymaster, which pays out these pensions, had discovered they were overpaying and was about to start retrieving the extra cash from the pensioners.

Mr Cable asked the Chancellor: “How many people are we talking about, how much money is involved, what are the steps that are going to be taken to retrieve the overpayments — which I understand in some cases is going back decades and are potentially enormous.

I hope none of us can face the possibility of large numbers of ex-servicemen suddenly being faced with bailiffs turning up and asking them to repay overpayments.

Mr Darling said a written statement from the Cabinet Office would be released later.