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Economics, government & businessLatest NewsBusiness performancePay & benefitsPensions

Burden of final salary pensions hampers recovery

by Personnel Today 7 Dec 2009
by Personnel Today 7 Dec 2009

Final salary pension deficits are making it more difficult for companies to recover from the recession and be competitive, a survey report has warned.

The biennial pensions survey by the CBI and consultancy firm Watson Wyatt found that pension deficits have become a leading issue in boardrooms as deficits worsened during the recession.

The survey of 240,000 businesses found that one-third of firms felt pension provision had significantly obstructed internal reorganisations or mergers and acquisitions, often leading to reduced competitiveness. This figure was double the level revealed by the 2007 survey.

In total 80% of directors said most final salary schemes would be closed to existing members over the next few years as a result of the recession, to be replaced by defined contribution schemes.

More than one-third of employers plans to take cost-saving steps within the next two years to reduce the cost of schemes or close them completely.

But business leaders remain committed to staff pensions, with 83% having said there was a strong business case for offering them.

John Cridland, deputy director-general of the CBI, said: “Businesses are not stepping back from helping their workforce plan for retirement. Even during this tough recession firms recognise the importance of offering their staff a good pension.

“However, the high and unpredictable cost of running final salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy. This survey clearly shows that more and more companies are making changes to these legacy schemes.”

Average employer contributions to defined contribution schemes have remained unchanged during the recession, at 7.1%.

The CBI has called on the government to reform poorly-drafted pensions law – including section 75 rules, which force employers to make large top-up payments when reorganising a company – to ease the financial burden.

The business group is also urging the government to allow for deficit repayment plans of more than 15 years during the recession, rather than the current 10-year limit.

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