Employees should consider ‘plan B’ for retirement income as SME pension liabilities grow

Employees should consider a ‘plan B’ for their retirement income as defined benefit pension liabilities held by SMEs continue to rise, Salisbury House Wealth has advised.

According to Salisbury House Wealth, the value of DB pension liabilities for SMEs increased by 5.6 per cent in the last year to £4.3bn in 2016 from £4bn in 2015. The firm noted that while growing liabilities of DB pensions is usually an issue more closely associated with larger companies, the findings present the “increasingly heavy financial burden” SMEs are facing from their pension obligations.

Growing liabilities have been driven by low interest rates and the increasing life expectancy of pensioners. As these rise, therefore, employees of SMEs are at risk of a retirement income shortfall if the sponsoring SME becomes insolvent, Salisbury House Wealth said.

As a result, the firm has advised that employees of less stable, smaller businesses should consider having a back-up plan, such as a personal pension, rather than relying solely on the success of their sponsoring employer.

Salisbury House Wealth managing director Tim Holmes, explained: “The risks of DB pensions are an issue for SMEs and their employees. Employees of small businesses hoping to draw on a DB scheme as a pension could face disastrous consequences if that business fails.”

“The BHS case is a salutary reminder of what can happen even when a big company fails.”

Holmes added: “Having a personal pension provides a useful ‘plan B’ to a Defined Benefit scheme. Relying on a DB scheme is betting that your employer’s business is going to remain successful in a fast changing economic environment for the next decade or two.”

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