Are final salary /defined benefit pension schemes really safe?

It is commonly thought that a final salary pension scheme (otherwise known as a defined benefit scheme) is the solution to all our retirement needs because of the guaranteed benefits it provides when you reach pensionable age.


However, this might be an illusion rather than actual fact.  If you take the UK as an example, at time of writing, there are a number of household name companies whose final salary pension schemes are heavily in debt.   The reality is that they are faced with either adding money into the fund to keep it afloat (an option they prefer to avoid), investing their way out of deficit (but since pension schemes are more cautious by nature this is increasingly difficult since they rely on Government Bond yields and they are at historic lows), or they close the scheme to new members (and possibly existing members) to avoid any further future liabilities.

If you have a pension in any of the following schemes, you should be aware of the current deficits they are running. (figures quoted in millions)

BT Group £7864
BAE Systems £3125
BP £2900
Barclays £2738
RBS £2183
British Airways £2070

In addition 75% of the top 100 companies in the UK are currently running deficits on their defined benefit pension schemes.  Financial security has never seemed so precarious.

It might be worth exploring the possibility of whether you can receive a lump sum payout to secure some benefits NOW.  Of course, this is not right for everyone and is subject to many factors.

A QROPS could be an ideal solution if you are, or are intending, to live outside the UK for the foreseeable future.