Virus threatens to sink UK govt's pension 'lifeboat'

Many pensioners in the United Kingdom could end up with payments that are 10 percent smaller than expected because of a flurry of novel coronavirus-caused company failures that would put the government program that underwrites corporate pensions under extreme pressure.

The possibility was raised by Steve Webb, the UK's pensions minister between 2010 and 2015.

Webb told the Guardian newspaper the Pension Protection Fund - an insurance policy for millions of people in final salary-style company pension programs - could come under such pressure it would use up its 6-billion-pound ($7.9 billion) surplus.

The fund, which has been called a "pensions lifeboat", steps in to pay corporate pensions that are wiped out by companies going out of business and is funded by annual levies charged to employers.

Webb, who now works as a consultant for actuaries LCP, modeled two scenarios to analyze what might happen if the pandemic causes a recession and company failures.

He said the Pension Protection Fund, which is also known as the PPF, could cope with demands of 10 billion pounds a year but would struggle if it had to find 20 billion pounds.

Webb told the Guardian: "If several larger employers were all to face insolvency in the coming years, even the more serious 20-billion-pound hit could prove to be an under-estimate."

He said the PPF would have to pay more people while drawing on contributions from fewer employers, something that could trigger a shortfall that would demand payouts be cut by 10 percent, something that would require the approval of Parliament.

He said the PPF has "a range of levers it can pull to absorb increased cost pressures without having to resort to cutting benefits to members".

"But we cannot be complacent …There remains a risk that too many such insolvencies could put a serious strain on the system."

Around 230,000 people currently rely on the PPF for their pensions.

Meanwhile, The Financial Times reports that one employee in every 20 in the UK will not get the corporate pension they are entitled to, even if their company does not fail.

The paper said new research shows agency workers, part time and temporary staff, and those on minimum wage are "at much greater risk of being excluded from workplace schemes that would boost their earnings in retirement "than the better-off.

A study by the Resolution Foundation, an independent British think tank established in 2005 to promote improvements in the standard of living of the poor, found more than 800,000 employees out of the 10 million workers who should have been enrolled in company pension programs since 2012 have not been.

Such programs boost pensions offered by the state.

The foundation said all workers are supposed to be enrolled in company programs but many have not been because of errors, opt outs, or issues around age or income.

Antony Arter, the pensions ombudsman, told a parliamentary committee in July that the COVID-19 crisis may have led smaller employers to try to save money by pressuring workers to opt out of such pension programs.