UK workers see wages trimmed to fund pension deficits

A report by the Resolution Foundation found that younger employees are the worst hit.

Many UK workers are suffering lower pay than they should because their employers are spending millions of pounds to keep defined pension schemes afloat.

A report by think tank the Resolution Foundation indicated that, in 2016, UK firms including BT, Shell, Tesco and Unilever ploughed about £24 billion into trying to plug their pension deficits. This situation led to their employees unfairly losing an average of £200 per year from their salaries.

The study said that the most affected were younger workers, many of whom would never benefit from this protection of defined benefit pension schemes as they were not open to them. Of the 11 million workers still in such schemes, less than 2% are under 30 and still contributing.

Half of the 6,000 schemes still in existence are closed to new members, with a further third closed to new contributions. The current deficit of these schemes across the UK is believed to be about £500 billion.

Matt Whittaker, the Resolution Foundation’s chief economist, told the BBC: “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.”

He added that with average earnings still £16 per week below their pre-crisis peak and prospects for a return to strong pay growth looking “shaky”, it was important for younger and low paid workers not to take a pay hit because of deficit payments into pension schemes for which they were not eligible.