UK pensions shortfall exposed by US comparison

UK employers’ pension plans are four times as likely to be underfunded as their US counterparts, industry research shows.

Only 5% of UK pension plans are fully funded compared to 20% of US pension plans, according to HR consultancy Aon Consulting.

The average pension plan deficit of a UK company represents around seven months of pre-tax profit compared to only two months in the US.

About 25% of companies in the UK have pension plans with a deficit representing more than two years of profits. Fewer than 5% of US companies are in a similar position.

US companies put in cash contributions of more than 10% of plan assets in the past two years, while their UK counterparts contributed only 7%.

Employer contributions rose from £18bn in 1997 to £37bn in 2003 – the figures that the CBI cites when telling the government to ‘stop beating up on business’.

However, Aon actuary, Andrew Claringbold, said: “This increase in contributions has been insufficient to compensate for a combination of falling bond yields, increasing life expectancy and poor equity performance.”

The recently launched Pension Protection Fund levy aims to encourage UK companies to have better funded pension plans.

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