Belfast Telegraph

Thursday 31 July 2014

Pension deficits hitting firms hard

Pension deficits are making it harder for UK firms to restructure, says research

Final salary pension deficits are hitting the competitiveness of UK firms and making it harder for them to restructure, research has shown.

One in three companies think the schemes have "significantly obstructed" mergers and acquisitions or internal restructuring, leading to reduced competitiveness - twice the number that felt this way in 2007.

Defined benefit pensions, which have become increasingly expensive to offer in recent years, have become a leading issue in boardrooms, according to the research by the CBI and consultants Watson Wyatt.

Around 73% of directors believing firms will have to increase their contributions to them even more in their next funding plan, despite the fact that most schemes are now shut to new members.

Eight out of 10 directors expect the majority of the remaining final salary schemes to be closed to existing members during the coming few years as a result of the current economic turmoil, with staff moved to less generous defined contribution schemes instead.

Nearly four out of 10 directors said they were planning to take steps to cut the costs of their scheme or to close it altogether during the next two years.

An increasing number of firms are also looking to transfer some of their pension liabilities to an insurance company, with 49% expecting to have done this for at least part of their scheme in 10 years' time.

But 83% of directors said there was a strong business case for offering staff pensions, although this is increasingly likely to be in the form of defined contribution schemes, under which the costs are known up front.

Under final salary schemes, companies state how much a worker's pension will be worth on retirement, based on the number of years they have belonged to the scheme and their salary immediately before they stop work.

But under defined contribution schemes, they only guarantee how much they will contribute to the pension, leaving individuals to shoulder the risk of investment volatility and increased life expectancy.

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