There was a time when big companies had Final Salary schemes that were overflowing with money and the companies took what were known as Pension Holidays when they stopped paying in. From time to time with some prodding by unions they’d increase benefits. Perhaps improving the lot of some group of employees who’d not been entitled to full benefits or perhaps improving the inflation proofing.
During the 1990’s everyone was talking about living longer. People were also retiring early. This didn’t seem to worry anyone. It took a lot of time to realise that pension funds needed more money to pay these extended pensions.
On top of that interest rates and bond rates were hit during the financial crisis so that long term calculations of returns showed that pension funds were underfunded by Billions of pounds. One by one companies reduced the pensions they were offering or closed them down. Some being handed to the Pensions Lifeboat.
No-one seems to ask how long the Pensions Lifeboat will last. At some point only a few companies will be supporting it and perhaps millions of pensions will be inside the lifeboat.
A change in bond yields could change all this very quickly but what will bring about the change in yields. If the economy goes bust and interest rates need to increase along with bonds it will hardly be the time to talk about increasing pension benefits.
Last year, 2016, it is said pension deficits trebled overall. It seems many pensions are skating on very thin ice.