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| The
first choice for people
in pensions |
| DB
schemes need £45bn bail-out
By Sophie Baker |
| In
order to make up for shortfalls suffered by the 200 largest privately
sponsored pension schemes, which at the end of October fell by £9bn
to a deficit of £15bn, trustees may be forced to ask sponsoring
companies to bail them out with a further £45bn a year for the
next five years, according to Aon. The Aon200 Index shows that the total asset losses for all the UK’s 8,000 final salary pension schemes is £226bn over the last year, and predictions that 2009 is set to be the most trying year yet for companies sponsoring defined benefit (DB) schemes, Aon is urging companies to embark on sensible financial planning. The Index, which tracks the 200 largest privately sponsored pension scheme accounting deficits, also showed that 64 per cent of schemes are now in deficit. Adding the deficit of these DB schemes to the deficit of defined contribution (DC) schemes that Aon reported, the total pension asset losses over the past year is £383bn. Aon said that the financial crisis is making trading conditions difficult, forcing trustees to seek higher contributions to secure pension scheme benefits. Liquidity problems are creating cash pressures for companies, therefore making it harder to meet their agreed contribution levels, and falls in equity markets worldwide have led to asset losses in the value of the DB schemes themselves. “Just as employers thought the economic news couldn’t get any worse, they are likely to be hit by more big bills to pay for their pension schemes when they can least afford it,” commented Marcus Hurd, head of corporate solutions at Aon Consulting. “If all final salary pension schemes were assessed for financial adequacy right now, then it is likely that contributions would soar by an additional £45bn a year over the next five years. “The triple whammy of falls in global equity markets, the worsening economic outlook and reduced free cash means that companies are facing the toughest environment ever for final salary pensions.” Hurd added that to offset these pressure, schemes need to support their companies with sensible financial plans, to ensure that pension obligations can be met in the long-term. “Just as companies thought pension debt was under control, this clearly shows that you can’t afford to ignore £1trn of liabilities managed by private sector UK pension schemes and only long term strategies to remove or reduce the risk are the answer,” he concluded. - Pensions Age October 2008 |