Beware the pensions black hole

We all know how important it is to start and maintain a pension to ensure a happy, well-funded retirement, and a lot of people understandably think their future is secure because they’ve been diligently paying into their scheme for years or even decades.

Often considered the pinnacle gold-standard of retirement planning, anyone with a final salary workplace pension might feel especially secure, but these pension funds are coming under scrutiny since the collapse of the BHS retail chain.

The term “pensions black hole” is one you may have heard in the media but not fully understand. In short, it means that grand total of assets gathered in a particular pension fund is not enough to pay out the expected level of claims as its members reach retirement. Pensions with such deficits are often able to continue to function for some time, while the number of those claiming is low enough. But as that number rises, the gap between the actual money available and that which was expected are exposed, and the employer offering the pension will be forced to take steps. In the case of BHS employees that means a drop of 10% in the pension pay out to each, as the PPF takes over administration.

The reasons for pension black holes to exist are many, from mismanagement to unfortunate turns in the market, from people living longer after retirement or slower economic development than expected, but the BHS incident should be considered a cautionary tale. At DPT we would always suggest that you take a personal interest in the health of your pension fund, and take independent advice to ensure that your retirement planning is everything it should be.