Wednesday, February 17

Reader's Digest collapses into administration – the pensions time bomb

First the news.

Publishing company Reader's Digest, famed for its magazine of the same name, has gone into administration in the UK, putting 117 jobs at risk.

The decision comes after talks between the company's US parent group and the UK Pensions Regulator broke down.

The dispute centred on how to pay down a £125m deficit in its UK pension fund.

Administrators said the UK magazine, which has more than 540,000 subscribers and was founded in 1938, would continue to trade while a buyer was sought.

Reader's Digest had agreed a deal with the Pension Protection Fund to pay off a small part of the deficit, but the regulator vetoed the agreement.

As a deal could not be done, the UK publisher said it would not be able to meet its pension obligations and so could not sustain operations.

The independent says:

> The title's failure means its UK pension fund, which has > 1,600 members, may have to be bailed out by the Pension
> Protection Fund (PPF) lifeboat.
> The PPF pays out in full for members currently drawing a > pension from failed schemes, but caps payment for those who
> are yet to retire at 90%, with a ceiling of around £28,000.
> This limit is expected to leave around 32 members - 2% - out > of pocket.

I am not sure people realise the importance of this. More and more firms are going to head into administration because their pension obligations are way too much. Worst case scenario: the government will withdraw from the open ended promise to fund all existing pensions (and this has still got a high probability). So if I was still contributing to a pension and working, then I will make sure that my pension is diversified away from one company and under my control rather than others. But this is going to happen more and more. This kind of open ended commitment from the government or the PPF is simply not sustainable and will throw a very large number of Brits into pensions penury. You better be sure that the firm you belong to has good financials or you are able to handle the pension outside the firms financials. The pensions time bomb is the most worrisome for me, who will pay this giant amount of money? It is going to be you and I and our kids. Thanks Pops..

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