Finance directors living in fear of pension schemes, particularly following BHS collapse
Tata Steel and BHS are not the only companies with problematic pensions, as research out today has found that many finance directors have concerns about their own firm's retirement vehicles.
The study by Hymans Robertson discovered that one in seven finance directors believe their company's defined benefit (DB) pension is a major risk, while the Pensions Policy Institute estimates that one in six DB schemes could ultimately become unaffordable for the companies which are sponsoring them.
Meanwhile, the deficit in the UK for DB pension schemes stands at £800bn, while pension liabilities are now £2.1 trillion.
"To pay workers their pensions in full, these schemes will either need to see unexpected growth in the business sponsoring them or a reversal of the capital market headwinds that have blighted DB schemes for the past 16 years," said Calum Cooper, head of trustee DB at Hymans Robertson. "Putting this in context, since the start of the millennium the value of the UK companies has stayed constant while pension deficits have tripled."
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Since 2006, the Pension Protection Fund (PPF) has had to take care of the retirement savings of over 220,000 pensioners. When this happens, the average pensioner stands to lose £45,000 from the total value of their pension.
Cooper added: "Greater numbers of schemes entering [the PPF] would put even more pressure on the levels of compensation it can afford to offer individuals which could in the extreme lead to further pensioner losses. This is why it’s so important for trustees and companies to work together in a partnership to improve UK DB pension schemes’ resilience to risk.
"Alternatively, the PPF could increase the levy companies running DB schemes have to pay towards it. This is essentially a cost to UK shareholders. While the levy is unwelcome, the level it’s set at is broadly accepted. There would be significant resistance to any increases."
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Jon Hatchett, head of corporate consulting at Hymans Robertson, remarked: "The need for sponsors and trustees to work together towards a common long term goal could not be greater. This is a must, not only to increase the security of individual’s pensions, and in the process minimise future strain on the PPF, but also to stabilise the cash contributions into schemes from companies."
On Monday, retailer BHS went into administration after failing to find a buyer willing to take on the business, and its £571m pension deficit.