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Workers’ pay ‘cut by £200 a year’ as firms plug pension deficits

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Some workers are seeing their pay reduced by £200 a year as employers try to plug gaps in their defined benefit pension schemes.

A report by the Resolution Foundation, a think tank, found UK firms spent around £24bn on ‘special’ deficit-funding pension payments last year, £19bn more than pre-2000 levels.

It said these increased payments have led to lower pay for workers in these firms to the tune of £2bn – or £200 a year per employee.

However, most workers will never gain from the defined benefit pensions being plugged, the report said, as of the 10.9 million members of DB schemes in the UK, 40% are retired and fewer than 2% are under 30 and still contributing.

Half of the nearly 6,000 DB schemes in operation are closed to new members.

The report said the drag on pay extends to the lowest paid workers who have never been members of their firm’s pension scheme.

Matt Whittaker, chief economist at the Resolution Foundation, said: “Our research shows for the first time that there is indeed a link between rising pension deficit payments since the turn of the century and reduced pay. The scale of increased deficit payments reduced workers’ wages by around £2bn last year, with workers in affected firms losing out on £200 on average.

“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.

“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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