Pensions - Articles - Pension deficit of £500bn heralds tough funding negotiations


The Pension Protection Fund (PPF) estimates that, at the end of August, aggregate assets in PPF-eligible schemes totalled £1,460bn. This was £459 billion less than the estimated cost of paying insurance companies to secure the reduced level of benefits that members can receive through PPF compensation after scheme sponsors become insolvent

 Commenting on the figures, Graham McLean, head of pension scheme funding at Willis Towers Watson, said: “Another month, another record UK pension deficit – and it’s now approaching half a trillion pounds. Lower interest rates have increased liabilities faster than scheme assets, and from a higher starting point. In aggregate, schemes only have sufficient resources to insure just over three quarters of the reduced benefits that the PPF aims to provide when employers cease trading.

 “The funding targets used by pension schemes are calculated differently[2], but employers and pension scheme trustees can anticipate some difficult conversations about how quickly these swollen deficits should be paid off.

 “Here, policymakers do not appear to be singing from the same hymn sheet. The Pensions Regulator has said that employers should typically expect to increase contributions so that schemes do not have to stay in deficit for longer[3] – though that was before the big increase in deficits since the referendum. Meanwhile, the Bank of England says that higher corporate pension contributions could stifle wage growth, dividends or investment, but that that this need not be a big worry because many companies can simply extend deficit recovery periods instead of contributing more[4].”
  

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