Of the circa 21,000 UK private companies that KPMG analysed, up to one in twelve (8%) currently display three of more zombie-like symptoms – companies under sustained financial strain.
Out of this population KPMG estimates that a fifth (or around 350 companies) will have DB pension schemes. In many of these cases adequately funding the pension scheme and turning round the business is a significant challenge.
Mike Smedley, Pensions Partner at KPMG said: “It’s clear that DB schemes that are less well-funded and attached to a zombie firm face challenges and will be more susceptible to external risks. Whether it’s change in the economic or political landscape or new regulation, companies and trustees need to avoid sleep walking into further danger.
“The health of pension schemes and sponsors in these situations are entwined, and there’s a real risk of a prisoner’s dilemma situation of second-guessing what others might do. Trustees, sponsors and their associated stakeholders and regulators need to work together to resolve these situations fairly.”
David Clarke, Restructuring Pensions Partner at KPMG said: “Zombie firms do pose a risk to the wider economy and difficulty in dealing with a large DB scheme deficit can be a crystallising event for the company.
“However, even in these difficult situations, there are always options if the parties engage early on in the process. Development of a joint company or trustee strategy will enable the company to take advantage of the flexibilities in the pensions system, whilst protecting scheme members and providing upside for scheme funding over the longer term. Whilst such solutions can be challenging to agree, they protect the company, jobs and members’ pension benefits.”
Zombie Firms
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