DB underfunding will worsen if we fail to act

When this type of scheme was designed, inflation and investment returns were higher, people weren’t living so long and companies could afford the costs as a result.

Unless UK Plc wakes up and has the political courage to deal with the problem head-on, the problem of underfunding will simply get worse. There’s no real option other than increasing retirement ages in line with increases to the state retirement age and reducing benefits to, for example, a maximum of 60 per cent of final earnings, or 45 per cent if and once the pension commencement lump sum has been taken.

In the case of statutory public sector schemes, the problem is worse because there is no funding – it’s a pay-as-you-go system, which is also unsustainable unless benefits are cut and employees pay more towards the benefits of retired members.

Malcolm Coury

Managing director,

Money Wise IFA,

Cambridge