Pensions "haves and have nots" dominates FD agenda

The issue of pensions has never been one that has tended to set FDs on fire. But with the pensions crisis an issue that is unlikely to disappear for a long time, the funding of pension funds is starting to dominate the agenda – albeit begrudgingly.

Two new surveys out this week have added yet more fuel to the pension’s fire, with both suggesting that workers may need to pay more for their pensions amid a continuing picture of fund deficits.

The poll of large companies conducted by the ACA found that 41% of employers said they were "likely" or "highly likely" to cut back the benefits of existing deals, the Association of Consulting Actuaries' (ACA) survey found. This was because they needed to meet the cost of a new scheme - being brought in from 2012 to 2017 - to automatically enrol some workers into a company pension, the ACA warned.

Big Four firm KPMG, meanwhile, warned that business growth would be negatively affected as the UK’s largest companies were forced to plough £11bn into pension deficits in 2009.

And despite the huge sums funnelled into pensions deficits last year, almost a third (32 per cent) of FTSE-100 companies cannot ever meet pension fund deficits from current discretionary cash flow, resulting in growing polarisation between the pensions 'haves' and 'have nots', according to KPMG's latest Pensions Repayment Monitor.

This represents the highest level in the survey's five year history and compares with 22 per cent of blue chip companies in 2008 that could not pay off their pension shortfall in any realistic timeframe.

"At first sight these figures look alarming,” said Mike Smedley, Pensions Partner at KPMG. "But they mainly reflect the consequences of the economic downturn on companies' profits and cash flow.”

KPMG’s message to sponsoring companies, pension fund trustees and regulators is clear -- maintain a long-term view and avoid knee-jerk reactions. “The most important thing in securing the future of pension provision is to secure the future of the business, not the other way round,” Smedley warns.

Bearing in mind the ageing of the UK’s working population, the fact that a huge proportion of the working population has insufficient or no private pension provision and so will be more reliant upon on the state system, one thing is for sure; something has to give. And sadly it’s something that will be taking up increasing amounts of FDs’ attention.