Pensions at risk – is Reader's Digest just the start?
Pensions experts are warning that, following the collapse of Reader's Digest UK, even more companies could go bust because of final salary pension fund gaps.
A well loved magazine with readers world-wide, the UK arm of Reader's Digest went into administration with a pension deficit of £125million after no deal could be reached to pay it off. There are now around 1,000 members of the final salary pension plan waiting to hear how they will fund their retirement.
Millions of employees rely on final salary pension schemes which already have big deficits, so the Reader's Digest collapse has raised more fears about the safety of these final salary pension plans.
With businesses still struggling after the credit crunch, their final salary pension commitments are going to have a major impact on profits and cash flow and could lead to more businesses going into administration just like Reader's Digest.
One man, Mark Walsh, who lost his job when his company went bust, believes that the business' downfall was brought about by its huge final salary pensions deficit.
"You plan for your future, you plan for your retirement and luckily I've got a few more years to try and save for that but I'm going to lose a lot of money in the 15 years I paid into it [the pension fund]"
Holes in final salary pension schemes have got larger not just because of the devastating effect the recession has had on business' bottom lines but because of factors like increased life expectancy and falling investment returns. Companies simply don't have the money to fill those holes.
Today around 90% of final salary pension schemes are in deficit, leading to worries that the golden days of generous retirement plans for companies' loyal employees are long gone.
James Mann, Independent Financial Adviser at Simpson Millar LLP Solicitors, commented:
"Due to the costs of maintaining final salary schemes and the impact they have had on businesses, very few schemes are open to new members. The majority of us will now have to make our own provision for retirement. It's best to start saving sooner rather than later as it can take many years to build up a fund to generate an acceptable income and maintain lifestyle in retirement. Simpson Millar LLP Financial Services offer independent financial advice on planning for retirement."
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