Feature

Black holes and regulations

A pensions ‘black hole’ is said to occur when a pension scheme is thought to have too little money in it to pay out – but what does that mean for HR? We asked Ros Altmann, the former-Minister of State for Pensions, what you need to know about this looming phenomenon.

How does a pensions black hole happen?

These ‘black holes’ can arise for many reasons. Partly because people are living much longer than expected when the pension promises were originally made. In part due to the sharp fall in interest rates in recent years, which means the scheme needs much more money today to provide the future pensions because returns over time will be lower than previously thought. Poor management of the assets or market downturns may be a factor, or the employer may hit hard times and cannot afford large pension scheme contributions without going bankrupt.

Why does HR need to be concerned about them?

HR needs to be concerned about black holes because the employer may have less money available for pay rises and benefits and members may be worried about their pensions. A big problem for HR may arise from workers who are in the final salary-type scheme have much better pension provision than those who cannot join. This amounts to a two-tier workforce, and some employees may be unhappy about the situation. HR also needs to be aware that the 'black hole' could threaten the survival of the company and employees might need reassurance about this.

What could employers be doing to help?

Most of these traditional schemes are closed to new members. The employer must make up deficits once the scheme is closed. Employers need to take their pension deficits seriously – the BHS situation was a classic example of how not to deal with the problem - and keep trustees and Pensions Regulator informed of any problems with funding the deficit. Employers also need to ensure they keep staff updated on what is happening – a role that HR will obviously need to help with.


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