In a new study*, published today by the IEA, actuary Nick Silver** estimates that the total deficit of final salary private pension schemes is nearly £500bn on a buyout basis (compared with £124bn on standard accounting bases). This is the basis relevant if companies cease trading or wind up their scheme. If they were to do so, most companies would be faced with an immediate liability much larger than the value of the assets in the scheme, which, in some cases, would often be larger than the value of the company as well. The potential debt is highly concentrated amongst a small number of companies.
The study also finds that, through short-sighted legislation, successive governments have added to the cost of final salary pension schemes, making them unattractive to employers and hastening their closure. In short, the pursuit of the perfect has been the enemy of the good.
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