Should We be worried about our Pensions

Pension Scheme – Attention on Health of Final Salary Pension

The efforts of BHS together with its pension scheme have drawn attention on the health of final salary pensions. Over the years, 20,462 members of BHS staff right from shop workers to executives have paid into the BHS final salary pension scheme and now will receive less during retirement than they had expected. The scheme which is said to be like a black hole or deficit of £571m is presently in the hands of the Pension Protection Fund – PPF, which is a lifeboat organisation that tends to step in when companies seem to be ruined.

The BHS scheme is considered to be only one of thousands of final salary pension schemes linked to companies all over UK, schemes that guarantee to pay retirement income depending on certain percentage of the ultimate salary each year for the rest of your life. Latest figure of the PPF portrays that UK final salary pension schemes tend to have a collective deficit of £302bn and there are 4,891 schemes in deficit when compared with 1,054 in excess. It is a bit doubtful that some may be struggling. Joe Dabrowski from the Pensions and Lifetime Savings Association – PLSA which is the trade body for pension schemes has stated that schemes are facing challenging times.

Calum Cooper of pension consultancy Hymans Robertson portrays a bleak picture. He states that there are between 600 and 1,000 final salary pension schemes at risk of not being capable of paying the pension of their members at the time of their retirement and this is a very substantial number which puts over a million pensions as well as the jobs at risk.

Experts agree that there seems to be two main causes of the black hole in final salary pension schemes. The first is comparatively simple; people are living for longer period which makes pensions more expensive for companies since they are paying the pensioners for a longer period. The second main issue is the uncertain economic position wherein pension schemes tend to depend on the contributions from employees being invented successfully. Long period of low interest rates together with volatile markets have made it difficult in making money from investing.

Pension Schemes Related to Performance & Strength of Parent Company

Mr Cooper states that the final salary schemes pushed in £30bn in the last year in an attempt to make up for poor returns though it has not gone more than a fraction of the way in ensuring things are evened up. Senior partner at actuarial consultants Lane, Clark and Peacock, Bob Scott informed that another problem is `over-regulation’. He stated that this added to the problems for businesses attempting to keep schemes in good health.

According to Tom McPhail, head of retirement policy at investment company Hargreaves Lansdown informs that there is a wider threat considering the design of final salary schemes. He states that were there many more schemes to get into trouble, they would seem to be very expensive to rescue.

He adds that the challenge is whether it is accepted that there will be these constant failures maybe ultimately putting the subsidy of the PPF itself under pressure. Pension schemes are related to the performance and strength of their parent company as pointed out by Mr Cooper, deficits of some schemes tend to be larger than the actual business supporting them.

The Private Equity, a market with strong growth driver - part II

The Private Equity, also known financing LBO (Leverage Buy-Out) groups for its funding and leveraged acquisitions of target companies, usually mature companies with strong growth potential. LBO funds - often associated with managers of the target - develop installation and operation of acquisition of the company with the objective to remain the capital of the latter ideally between 5 and 10 years while significantly improving the result of the business recovery. The solutions for output or funds are then variables: initial public offering, taken over by another fund, an industrial sales ...

Born in the USA, in the 60's, with the purchase by McLean Industries Inc.. Waterman Steamship Corporation, this type of acquisition has been truly popular in the '80s under the aegis of funds such as KKR who have made significant transactions in the image of the acquisition of RJR Nabisco for more 36 billion dollars (which was then the first landmark LBO). The event was followed by a steady evolution for twenty years, but no relation to the recent explosion.

This momentum is the result of a combination of several positive key factors. The first of these is an abundance of liquidity in financial markets. Attracted by high yields (15-16% on average), liquidity providers (banks and insurance institutions, pension funds and private wealth) do not hesitate to fill the capital market allows investors to raise funds more increasingly important. Direct consequence, the number of LBOs has increased but more importantly, the number of very large transactions (over one billion Euros. SMEs are no longer the only target of LBO financing transactions, large groups of interest to certain funds, particularly in terms of business management. So after the frenzy of acquisitions recorded in recent years, these groups now intends to liquidate their related activities generate higher margins.