Final salary pension employer contributions will wane

Two-thirds of companies will contribute less towards final salary pension scheme contributions next year, a survey has revealed.

Figures out today from Aon Consulting, a pension consulting firm, have shown that 71% of pension schemes are now in the red, with shortfalls standing at £25bn, according to the Aon200 index for August. Difficult market conditions, rising inflation and equity market falls are continuing to increase the deficits faced by these schemes, the survey said.

Marcus Hurd, senior consultant at Aon, said: “The threat of an impending recession is causing companies to haul in discretionary spends. While there is an increasing pressure on companies to contribute more into final salary pension schemes to clear deficits, the harsh realities of the economic climate appear to be setting in.

“Given that 71% of pension schemes are in deficit at the current time, the apparent intent to reduce contributions may seem alarming, but cash is not the only solution to pension scheme funding. Alternative forms of security, such as group company guarantees, can play a significant role to ease the liquidity burdens of UK plc.”

The Aon200 Index, which tracks the surplus (or deficit) of the 200 largest UK privately-sponsored pension final salary schemes, shows a £4bn deterioration over the past month with deficits now standing at £25bn (compared to £21bn in June), a £15bn increase in deficits compared with figures this time last year.

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