Low gilt yields and rising pension liabilities means companies are failing to meet their pension obligations according to the PwC. Their Pension Support Index, which rates the level of employer support to its pension schemes, has rated the FTSE 350 companies as 69 out of 100 – its worse score since 2009 and 13% lower than last year.
Stuart Price, Partner and Actuary at pensions specialist Quantum Advisory, says he’s not surprised and, due to the cost pressure to support defined benefit pension schemes, expects many more of these schemes to close to accrual and be replaced by defined contribution arrangements. Stuart said: “We definitely expect to see more closures of defined benefit schemes as even the larger companies are struggling to support such generous schemes. Although closure to accrual will help reduce ongoing costs for employers, they still have to support the benefits built up to date, so it won’t magically make the deficits go away.
“This could still be a struggle for many, so I suspect we are going to see more deals with the Pensions Regulator and Pension Protection Fund (PPF) where employers offload their schemes to the PPF in return for a significant contribution to the scheme and the scheme receiving a stake in the company as was the case with Tata and Hoover.”
Stuart Price, Partner and Actuary at Quantum Advisory