Pension lifeboat may be sunk by wave of firms being liquidated

[Legal Beagles]

A government-sponsored pension lifeboat scheme could be overwhelmed by a wave of liquidations, experts warned yesterday after the collapse of Woolworths.
The Pension Protection Fund (PPF), which has already rescued more than 66 retirement schemes, may be forced to increase its levy on profitable companies to boost its finances or risk a government bail-out if more companies go bust.
The warning came as John Ralfe, an independent pensions consultant, estimated that the Woolworths pension scheme was likely to end up with a deficit of £250m.
Though the PPF will guarantee much of the value of pension holders' retirement savings, the compensation will not cover the entire shortfall, and Woolworths pensions could still be reduced by as much as 20%, Ralfe predicted.
Ralfe has calculated that the PPF may have to inject £100m into the Woolworths pension pot - one of the largest payouts the fund has made in its three years.
Insolvency experts expect the fund to be called on more often in coming months as more large employers go bust.
Paul McGlone, of the consulting actuaries Aon, said the PPF could face some tough choices next year. "The PPF collects a levy of £675m a year to fund itself, which means it only takes another seven Woolworths to eat up those funds," he said.
Woolworths reported a pension fund deficit at the start of August of £58.2m, on an accounting basis, but the company is privately conceding this figure could be higher after the 800-strong chain store and wholesale CD and DVD supplier called in the administrators yesterday.
Initial estimates put the shortfall at £100m but Ralfe predicted £250m. Woolworths' accounts show the pension fund had liabilities of £384m at the start of February but Ralfe estimates the buyout cost would be closer to £500m. And he suggests assets - shown in the accounts at £317m in February - are likely to have fallen considerably as 67% was held in shares.

• Pensions

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