Dispatches: Is Your Pension Safe?

Reporter Shaunagh Connaire investigates what is happening to Britain’s pensions amidst all the market turmoil. 

11 million people are on ‘defined benefit’ company schemes, these were set up decades ago and they promised a fixed proportion, typically of your ‘final salary’, based on your age, years of service and earnings. At first the pension funds received good returns on their investments but many of these returns have been dropping for years, reducing the investment which - combined with pensioners living longer - means that employers are struggling to meet payouts and liabilities.

These company retirement schemes are facing huge deficits, the gap between what they promised to pay their long-living pensioners, and how much money their investments have accrued.
Companies include:

• BT - £5.2 billion deficit

• BAE Systems - £3.8 billion deficit

• Tesco - £2.4 billion deficit

• According to independent pensions consultancy Hymans Robertson Britain’s defined benefit pension schemes were £800 billion in debt before Brexit, this deficit has now reached a record £900 billion.

Steve Webb, Director of Policy Royal London, says: “Assuming that Brexit means lower interest rates for longer, that’s seriously bad news for defined benefit pension schemes. Because what it means is, if interest rates are low, those promises that stretch decades into the future, they don’t go away, that’s still there. You can’t say, well we will invest the money and it’ll grow."

BHS:
Growing pension debt exacerbates problems in already struggling companies, like many high-street businesses BHS has been struggling for years, and it recently went bust. 20,000 BHS staff were promised monthly income in retirement – was the collapse of BHS partly down to its expensive pensioners?

It is not yet clear who will pay for it, but BHS’s pension deficit would cost a new owner £571 million pounds.

Professor David Blake, CASS Business School, “Pension liabilities are a millstone around company’s necks in this country. Having to make a decision, a trade-off between ‘do we use our profits to pay dividends? Do we use some of our profits to re-invest in the company? Or do we just use our profits to pile into the pension scheme, and try to fill the deficit?”

Pension Protection Fund – PPF:
The PPF, launched in 2005, often referred to as the pensions ‘lifeboat’. Around 6,000 companies pay into it, like an insurance policy, and the company covers their retirement pay-outs through defined benefit schemes. People already past their retirement age get full pension, and those who are still working will get 90% of their entitlement when they retire.

Parliament sets the rules and a cap on payments, currently just under £34,000 per year. However, if you take a lump sum, or retired early, you could face a drastic cut. According to a report by the Pensions Institute ‘The Greatest Good’:

• Currently 80% of the schemes covered are in deficit

• One thousand of theses are ‘stressed’ and unlikely to be able to cover their shortfall, a total of £45 billion pounds

Yet according to the Pension Protection Fund’s last annual report, the rescue fund only has £3.6billion in the bank

The PPF told Dispatches, “The cap is much higher than the average PPF compensation and it affects less than 1 in 200 people. The government has announced plans to raise the cap for long service, meaning that an even smaller proportion will be affected in future. The PPF has a clear funding strategy and regularly publishes updates… including results of stress tests. These clearly demonstrate that even under testing scenarios, the PPF would be financially robust and able to cope with a sharp upturn in insolvencies.”

They also said of the pension scheme members that they, “can be confident that the PPF will be there should they need it.”

Master Trusts:
10 million people in the UK, mainly working for small companies are being signed up to new style pensions – called auto enrolment. That majority of small and micro-businesses are opting for an apparently easy and economic solution to choosing a pension scheme. 

Multiple employers share a pension scheme and the same board of trustees, they’re called Master Trusts.

There are some good Master Trusts, some with little track record – and some have already gone under.

Is enough being done to check up on pension companies when they register?

To run a scheme you need to make a number of declarations including:

• Register with HMRC

• Tick a box declaring that you are a “fit and proper person”

• Declare you are not a tax fraudster

• Declare no criminal convictions for dishonesty

• Declare that you aren’t bankrupt.

Nobody asks for any proof of whether you have the resources or the expertise to actually fun a pension scheme. HMRC says it does risk assessments of schemes and their administrators before a decision is made and they can investigate applicants. The government says checks are in place to block applications if they fail a risk assessment. But is this enough?

Nick Keppel-Palmer set up a website to help small business owners to chose the best pension for them and their employees. He looked at more than 70 pensions, testing them for their economic viability, the quality of the people running them, and how transparent their charges were. He only found nine worth recommending. The most troubling providers were the Master Trusts.

Transparency in the pensions market:

Tom McPhail campaigns for transparency in the market and Dispatches asked him to look at a range of Master Trusts including Simply Auto Enrolment and MyWorkplacePension.
Simply Auto Enrolment has a great testimonial on their website, implying they were trustworthy. Dispatches discovered that this ringing endorsement was actually written by the man who established the company in the first place, Chris Gaffney.

Simply Auto Enrolment said, “the comments from Mr Gaffney have been removed from our website and seem to have been included in the infancy of the business by a past website development company we no longer use.”

Channel 4 Dispatches tonight, Monday 18th July, considers the full impact of Brexit on our pensions. Prior to the EU Referendum millions of Britons were in company pension schemes that were racking up record debt - now with a volatile stock market and the pound crashing Dispatches examine how safe our pensions really are.

One of the founding directors of MyWorkplacePension Ltd, is also the founding director of a sportswear company, called Wide-Boys-R-Us. Their founding director has resigned but until February their website carried a claim that their funds are, "managed by a fund management team through Old Mutual." But the respected city firm wasn’t involved. The claim was simply wrong.

Old Mutual says it was never even in discussion with MyWorkplacePension. Workplace Pension Trustees told Dispatches the original wording was included when they intended the funds would be managed by Old Mutual. Workplace Pension Trustees told Dispatches:

“The wording was inaccurate and included in error. We removed that wording in February … prior to the launch of the scheme …We would like to apologise for any confusion caused... Wide-boys-R-Us was .. a company selling clothes for larger gentlemen. It was a separate and legitimate business. Engaging in such a business has no impact on the ability of directors with a long experience of pensions matters, to carry out that pension business.” 

Post Brexit:
After the Brexit market turmoil it seems that some of the Master Trusts are offering yields that seem too good to be true. One claims it will deliver, ‘long term growth with a forecast average yield of 8% per year.” When questioned the company stood by their claim, despite it being four times what you’d get on a typical savings account a the moment.

Tom McPhail, “Given the economic uncertainty that now exists since the referendum result, everything should be up for review to just sail on blindly, regardless, assuming everything’s still going to be fine, again I find pretty worrying… This market definitely needs more regulation, it is not fit for purpose at the moment. There are good Master Trust providers running their businesses in safe, responsible ways. But it is far too easy at the moment for businesses that present significant risks for members to set up shop, to take money in, to look after investors’ money and bad things could happen."

The Department for Work and Pensions says that: “Automatic enrolment has been a huge success” with over 6.4 million people already enrolled. 90% of Master Trust members are in schemes which met a government assurance framework.

“Master Trusts are already subject to a number of regulatory requirement under existing pensions law and are regulated by the Pension Regulator. We also want to make sure that these schemes have safeguards, which is why we are looking to introduce new protections in the Pensions Bill this autumn.”

Mounting economic pressures could affect retirement savers across the board. More pensions legislation is due later this year should deal with some of the concerns raised in this programme – including tightening up on Master Trusts. But with a legislative log jam now expected post Brexit, will this happen?

IS YOUR PENSION SAFE?: CHANNEL 4 DISPATCHES - Monday 18th July, Channel 4, 8pm

Reporter: Shaunagh Connaire
AP: Jasmine Macnabb
Producer: Jane Drinkwater
Exec Producers: Steve Boulton & Mike Lewis