Business

Workers 'suffer £200 pay cut' to fund pension deficits

young workers in office Image copyright Getty Images

Workers may be suffering from lower pay as a result of their employers spending millions of pounds to keep their pension schemes afloat.

A report by the Resolution Foundation says such employees are unfairly losing an average of £200 a year.

It said those most affected are younger workers, many of whom will never benefit from the defined benefit pension schemes being protected.

In 2016, UK firms spent roughly £24bn trying to plug their deficits, it said.

Among the companies ploughing millions of pounds into their pension schemes were BT, Shell, Tesco, Unilever and Royal Bank of Scotland.

The current deficit of all defined benefit schemes in the UK is currently thought to be about £500bn.

'Losing out'

The report says older workers, and those already in retirement, have the most to gain when companies top up their pension funds.

Of the 11 million workers still in defined benefit schemes, less than 2% are under 30 and still contributing.

Half the 6,000 schemes in existence are closed to new members, with a further third closed to further contributions.

"This drag on pay has important implications across generations as low - and often younger - earners in affected firms are losing out on pay even when they are not entitled to the pension pots they are plugging," said Matt Whittaker, chief economist at the Resolution Foundation.

"With average earnings still £16 a week below their pre-crisis peak and prospects for a return to strong pay growth looking shaky, it's important that younger and low- paid workers don't take a hit to their pay because of deficit payments to pension schemes that they're not even entitled to."

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