What Does The Term, 'pension Deficit', Actually Mean?

[sandyRoe]

I think it rarely comes about because of fraud, though it may have done in the case of Robert Maxwell.

[douglas9401]

Speaking as a layman I think it means that shareholders get theirs first and those who have contributed over their entire working life can pretty much take what they get or far cough.

[mikey4444]

Sandy....It means that the assets in a pension schemes are insufficient to meet the pensions that will need to be paid out to members during the next few years.

My own BT pension fund is currently in deficit to the eye-watering amount of £7bn !

This means that BT will have to continue to pour huge sums of money into its pension fund for many years ahead.

[sandyRoe]

How would such a situation come about? I mentioned Maxwell and The Mirror but I can't see anybody in BT, for example, with their hand in the till.

[mikey4444]

Sandy....The underlying assets in a pension fund are increased or decreased each year by its ability to respond to market forces. A large amount of the total Fund is invested in fixed interests and gilts, and these are at an all time low.

[sandyRoe]

Are pensioners yet more victims of the banking crisis of some years ago?

[mikey4444]

Yes, probably !

I don't know if you have a company pension or not, but I hope that if you do, its not a BHS or British Steel one.

At least mine is with a company that is still trading and trading very successfully. My hopes at the age of 63 is that it will be around for the few years I have left !

[woofgang]

mikey are you drawing yours? Once you draw your pension, I believe the money is taken out of the pot and purchases an annuity which pays your pension, and is separate from the business although it may actually be paid to you by your ex employer.

[mikey4444]

Woofy...yes, I have been drawing mine since aged 55. There is a government scheme that will step in if a company goes bust, although its doubtful if that will be needed in my case.

My heart goes out to the BHS staff though, who appear to be up s*** creek without a paddle.

[ubasses]

The problem is that most final salary pension fund closed many years ago, so there are not enough contributors to meet the those already, and soon to be retired. Pension funds are also highly dependent on the stockmarket and dividend income. This makes dividends a 2 edged sword, Pension fund need to benefit from them and it leaves Companies with less to fund their own schemes. A lot have moved into safer investments with lower returns.

Many years ago, whilst still working I attended a breakfast meeting (yuk) where the speaker was an Economist. One question was how are pension funds valued. The reply, how many people are their being paid pensions, how many future pensioners will they be, how many will carry on to retirement age contributing and how many will leave the Company. Then work out how long they are all going to live. Stick your finger in the air and see which way the winds blowing. At least he raised a laugh.

Coincidentally I have just closed an email from my own pension provider with the results of the Compulsory Triannual valuation (end of 2014 as it takes so long) It is valued at 102% so at the moment I am hopefully in a fairly secure position.

[mikey4444]

Ubasses is correct here.

How long is a piece of string ?

How long will the Pensioners live is a premium factor in these cases. People are living much longer these days then did only a few years ago.

Not sure about the annuities though ?

[ubasses]

I think some of the smaller Company schemes buy annuities.

[wolf63]

I received a final salary pension when I got very early retirement on health grounds. I believe that the pension offered since then (2003/2004) is not quite as good.

My lump sum evaporated very quickly

[mikey4444]

Wolfie....Lump Sums have a terrible tendency to do that !

[woofgang]

Didn’t one of the Chancellors raid company pension funds too?

[woofgang]

yup
http://www.telegraph.co.uk/finance/personalfinance/pensions/10798785/True-cost-of-Labours-pension-tax-raid-and-others-since-Seventies.html

[Peter Pedant]

// A pension fund deficit is simply when potential liabilities are greater than the assets. // db

but of course it isnt as simple as that

I am sure we have had this before you know ....

anyway Ubases answer should be best....
and yes I am reasonably certain she gave the same answer last time

and it all depends on how you define liability ... and luckily for us the Man from Brussels has had a go and he defines it as
the amount of money you would have to pay on the day of valuation out if everyone took their pension on that day
what ... even the 25 y olds ? .... yup
so as you can see - it is a bit of social construct = the phrase means what you want it to mean and that day will never occur

The NHS scheme is pay-as-you-go and so there is no pension fund ( look I am SURE we have had this before ) and the pensions are paid fully out of current year contributions and so there are no assets for to offsete the calculated ( see above ) liabilities of $163 bn
This is nt a mistake the sustem was designed like this

Pension hlidays are a a thing of the past
yes the chancellor killed all final salary schemes in 1997 when he did his pension tax grab

and no fraud is NOT a cause of pension deficit
and yes Maxwell DID loot his pension fund
he instructed the mirror pension trustees who should have said no but said yes instead to buy Mirror shares to support the share price
( obvious fraud )
I think there were THREE pension acts after that as our wonderful govt couldnt get the regulation right