Countless firms are weighed down by the costs of “final salary” pension promises originating from schemes set up decades ago. Responsibility for them may have changed as a result of takeovers and mergers, but the costs they place on businesses has in most cases grown exponentially.
It is a burden that weighs on several of the holdings in Questor’s Income Portfolio (updates of which are published here every Friday).
Final salary schemes promise to pay “guaranteed”, inflation-proofed income for life, linked to employees’ salaries and length of service. All the risk is borne by the employers backing the schemes. When they were established there were far more active members making contributions than those drawing a pension.