UK. Coronavirus crisis hits occupational pension schemes
Members of generous final-salary workplace pension schemes could see their guaranteed benefits jeopardised by the Covid-19 pandemic. Many such schemes are in deficit: they lack the money to make good on all the pension promises made to employees .
In the short term, the outlook has improved. The Pensions Regulator has now given employers longer to make up this shortfall since many firms are suffering from the pandemic.
This will help employers squeezed by the virus. But it will mean that pension schemes operate with larger holes in their finances for longer. And if the business fails to recover, it may leave the pension scheme short of the funds it needs to pay pensions, both to those already retired and to future pensioners.
A regulatory gamble
In such circumstances, the Pension Protection Fund (PPF), the industry lifeboat scheme, would typically step in to pay pensions, but only up to a certain level. The PPF has maximum cash limits on the payouts it makes and also requires those yet to retire to accept a 10% reduction in their pensions.
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