Pension fund managers have warned that rising costs and pensioner withdrawals are placing pressure on the fund, and that a $4bn shortfall is set to come due in 2021.
The Pensions Protection Fund, a joint venture of the United Kingdom’s Royal College of Pensions and the European Investment Bank, said the shortfall was likely to be $4 billion to $5 billion, depending on pension fund size.
In a statement, it said it had already started to reduce the pension benefits it was providing to more than 600,000 current and former employees of pension fund companies and pension fund funds in the United States and Australia.
The Pensions Protect Fund said the $4,000 to $6,000 a year that pensioners are entitled to was not being provided.
It said it would seek to increase that to $12,000, which it said was necessary to maintain a robust fund.
However, it added that the shortfall had risen from $1.5 billion in 2016.
“We need to maintain our balance sheet and continue to make sure that the pensions protection fund continues to meet its obligations,” it said.
Pensioners will be forced to find savings of up to $2,000 annually, the Pensions Fund said, unless they have an extra $1,000 saved at the end of each year.
In a letter to shareholders on Tuesday, the pension fund said it was “under no illusion” that rising pension and retirement costs would reduce its annual fund return, which in 2020 was estimated at 1.5 percent.
There was “no prospect” that the fund would be able to meet the $1bn shortfall this year, it warned.
It said the loss to the fund from the shortfall in 2021 would be $2.6 billion to 2020, depending, among other things, on the size of the company.
Under the pension reforms that were announced in 2016, all pensions have to be protected by the fund.
Currently, some pensioners receive a maximum of $10,000 per annum.
Many pension funds in Australia and New Zealand also rely on a tax-exempt bond fund, which is the main way in which they fund their operations.
New Zealand’s Pension Guarantee Fund has been hit hard by rising costs, which have led to it raising its withdrawal rate from 2.9 percent in 2015 to 3.3 percent this year.
Its total reserves are now worth more than $1 billion.
Australia’s Commonwealth Pension Scheme, which provides pensions to more senior citizens, has been in a “dismal” state since it began receiving pension funds from the Pension Protection Fund in 2015.
Australian Labor leader Luke Foley said on Monday the Pies were “a disgrace” to the profession and that the Government had “no clue” about the pensioners predicament.
Former Treasurer Wayne Swan told Sky News that a new government would have to address the shortfall, adding: “We need a better and more resilient fund.”