Charles Cowling, Chief Actuary at Mercer, said: “Pension deficits, as measured by accounting rules for company accounts, have not changed much compared to 12 months ago. However, pension liabilities as measured by trustees, have jumped as equity markets and interest rates have witnessed record falls. It will be a challenging year for actuarial valuations, with any demands from trustees for extra cash likely to be unwelcome as many employers struggle to find the cash to keep their businesses going.
“The Pensions Regulator (TPR), which has just issued its Annual Funding Statement, has a difficult path to steer. On the one hand it wants to encourage trustees to protect members’ interests and maintain a focus on long term reductions in risk and improvements in funding. On the other hand, TPR is mindful that we are in exceptionally difficult times and many employers are teetering on the edge. A previous Chancellor of the Exchequer asked TPR and trustees to consider the growth prospects of companies when reaching agreement on pension contributions. Now perhaps survival prospects should be the focus and so trustees need, more than ever, to understand what level of cash contributions employers can truly afford. Echoing words from TPR’s latest statement, in the current environment, we expect the frequency and intensity of trustee monitoring of employers to be increased significantly until covenant visibility and strength is restored.”
Maria Johannessen, Partner and Corporate Consulting Leader at Mercer said: “We are now working with a number of corporate clients on how best to navigate the difficult times ahead and ensure all available and appropriate options are already employed or will be employed shortly – from contribution suspensions and investment strategy changes to more holistic revisions to funding strategy.”
Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.
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