2009 pension abyss
UK companies providing defined benefit (DB) pensions could face a twelve-fold increase in pension deficit by the end of 2009, according to Xafinity Corporate Solutions’ latest interactive model, Corporate UK Pensions Scheme.
The results highlight the challenges facing finance professionals with responsibility for ongoing funding under FRS17, buy-outs or any potential merger or acquisitions activity.
The new interactive model is a predictive tool available on the company’s website and offers finance professionals the ability to model different scenarios based on some 93 percent of the UK’s PPF-eligible DB schemes and some 12.4 million members.
Commenting on the £689 bn pension deficits projection, Xafinity Corporate Solutions director and senior actuary, Rob Hunt explained: “We often hear the expression – it’s a pension scheme with a business attached. For many companies funding their pension scheme presents significant problems and in difficult economic times we do not see this problem easing. At present, the difference between gilts and corporate bond yields, around 2.5 percent, is the highest we’ve seen since The Great Depression.”
He added: “Even if the FTSE recovered to 5000 the Corporate UK Pension Scheme model predicts that the combined UK pension scheme deficit would still be around £583 bn.”
While the model is currently unlikely to give any good news to schemes, it can help company executives and finance professionals plan their own scheme’s future, whether it’s ongoing funding, FRS17 or buy-outs.
Meanwhile, a survey from Hymans Robertson reveals that seven out of ten Brits believe that company pension schemes could be closed to all workers as a result of the increase in tax on pension contributions for high earners announced in the 2009 Budget.
Almost half the nation (47 percent) is aware of the increase in taxation, showing that pensions continue to be front-of-mind for the general workforce and 45 percent of the nation believe that the policy to increase the tax on pensions for people earning over £150,000 a year is a bad idea.
Six out of ten (61 percent) are fearful that the Government’s new policy may lead to companies cutting back or closing pension schemes for all employees.
Patrick Bloomfield, Partner at Hymans Robertson, said: “There is a perception amongst many that the general public is not clued up on pensions issues, but our survey shows otherwise. Regardless of their own income, people are aware that the Government’s increase in taxation for high earners will affect us all, as key company decision makers are less likely to keep a pension scheme open if they themselves stop paying into it because it is not tax effective.”
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