This month has brought news that two further icons of retailing, Marks and Spencer and Wedgwood, are embroiled in crisis in relation to their occupational pensions schemes. These latest casualties in the crisis surrounding defined benefit occupational pensions has underlined again the need for all workers to seek pension advice and consider private pension schemes, as part of their retirement planning.
Marks and Spencer has announced it will contribute £800m immediately towards the £1.3bn hole in its defined benefit occupational pension scheme. Meanwhile, following the demise of Waterford Wedgewood last year, the Wedgwood Museum Trust, which manages the company’s pottery museum in Staffordshire, is the last solvent part of the business and as such has had to take on the £134m occupational pensions debt of the whole company. The museum will now struggle to repay the debt but may be forced to close and sell its exhibits.
Defined benefit pension schemes or final salary company pensions provide a guaranteed payout to employees, based on their salary at retirement and their number of years with the company. However, during difficult times the stock market investments underlying defined benefit company pension schemes can fail to provide for the schemes’ obligations to retired employees. This leaves the company to pay the shortfall from its own resources.
In consequence, many companies are now closing their defined benefit pension schemes to new members, and instead opting for defined contributions company pension schemes.
With defined contributions company pension schemes there is no guaranteed payout, and the employee’s retirement fund is based only on the performance of the funds investments in the scheme. In other words, the employer or company no longer has a guarantee to meet, and the investment risks in such occupational pensions schemes is transferred from the employer to the employee.
