Final salary pension rules cripple struggling businesses

Firms struggling to survive the recession risk being dragged down by their final salary pension deficits unless they are given more time to pay off shortfalls, the CBI has warned.

The business group called on the Pensions Regulator to help businesses that are in difficulty to repay pension deficits over 15 years, rather than 10 as currently required.

This would allow companies to manage any shortfall over a longer time frame, so that they could prioritise maintaining jobs and investment during the recession.

John Cridland, CBI deputy director-general, said: “Firms who are fighting to preserve final salary pensions find themselves punished by regulation and much worse off than firms who offer no pension at all. We cannot allow sound businesses to be dragged down by these pensions, particularly during a recession.”

He added: “Longer recovery periods will help firms keep their commitment to pensions without forcing them to divert critical cashflow.”

Cridland said moving to longer-term pensions valuations, part of an eight-point plan by the CBI published today, would help businesses continue to provide final salary schemes, rather than close them altogether.

A survey earlier this month by HR consulting firm Aon found that half of employers with final salary or defined benefit schemes could be closed to future accruals by 2011, trebling the number that have already done so.

Other measures called for by the CBI include making it easier for schemes to change the default retirement age to provide pensions that easily adapt to the changing workforce.

Businesses should not be restricted by poorly-drafted pensions law, and the government should reconsider its proposal to tax employers’ pension contributions, the CBI added.

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