UK employers are increasingly relying on potentially worthless guarantees from foreign parent companies to fund pension schemes, legal experts have warned.
This risks leaving employees with massively reduced pension benefits when they retire, according to Chris Close, partner at pensions law firm Sackers & Partners.
Trustees were given powers in the Pensions Act 2004 to demand that payments be made into pension funds if triennial evaluations revealed them to be in deficit.
As many schemes are coming up for evaluation now, with the majority in deficit, this is causing funding headaches for organisations.
“Employers are being hit for six. The common problem is that there is not enough money going into the pension scheme, so trustees are asking for other forms of security,” Close told Personnel Today.
Many employers are being forced to guarantee future contributions from their parent company – many of which are based abroad.
“Of 30 clients, five of them are using this method – four of which are using overseas companies,” said Close.
He warned these deals were on shaky ground as many foreign parent companies did not have the power to give this guarantee within their legal framework.
Get joined-up on pension and share schemes
HR professionals have little understanding of how to maximise the benefits of pension and share schemes, according to an expert.
Jonathan Watts-Lay, director of pensions education firm JPMorgan Invest, told Personnel Today that a lack of communication was harming employers.
He said thousands of firms were missing out on attractive benefits schemes because they didn’t link share and pension schemes together. “There is a lack of joined-up thinking. If you are the pensions person, you might understand the law but know nothing about share schemes.”