UK – A public worried about their occupational pensions are increasingly coming to the doors of the pensions advisory service OPAS, the London based body to handle pension enquires, for “help and reassurance”.

“The issue of underfunding and associated negative publicity are sapping public confidence in the security of final salary schemes and increasing risks their members are taking,” OPAS says in its annual report. “This state of affairs must be addressed and soon.”

The moves by some employers to close defined benefit plans and replace them with “inferior” defined contributions “greatly concerned” the service. While moves to DC can be achieved through consultation, “we have noticed that unfortunately members do not always understand the effect of a change from a final salary scheme”.

“This is a particular problem for older workers, who will often need to increase substantially what they pay in to try to ensure the value of their ultimate pension is maintained”. It calls for financial advice to scheme members in this situation.

It points to the lacuna within UK pensions where the regulations on winding up schemes require funding shortfalls need only be made good to the minimum funding requirement level. “The current structure of MFR means that only existing pensioners can receive their full benefits, while others (actives and deferreds) have to accept an often wholly inadequate transfer value. Often scheme members face the terrible shock of realising the inadequacy of their protection in these situations.”

OPAS refers to the increasing number of cases where trustees have agreed to compromise the debt on the employer, effectively reducing what the employer would have to pay into the scheme, when “it is alleged that to do otherwise would force the employer into liquidation”.

“It appears that trustees can take this action without any independent verification of the facts by the courts or some other body with the statutory authority to do so,” says the report.