UK employers cut pension deficits in half UK employers cut pension deficits in half

UK employers cut pension deficits in half
17 Aug 2018

UK employers have managed to cut their collective final salary pension deficits by almost half over the last 18 months, research by a pension consultancy firm has revealed.

According to Barnett Waddingham, the combined defined benefit (DB) deficit for FTSE 350 companies fell from £62 billion (US$79.8 billion) to £35 billion (US$45 billion) by the end of June. Shortfalls now account for just 17% of total company profits, down from 70% a year and a half ago.

The reduction is believed to be the partial result of organisations contributing more to their pension schemes, with payments having increased for three years running. But some of the decrease was also linked to better performance of investment portfolios and the fact that the average pension top-up represented just 10% of dividends paid out.

Nick Griggs, a partner at Barnett Waddingham, said: "With the health of the UK and global economy threatened by a lack of progress with Brexit and the threat of a trade war from Trump’s America First assault, there could a major impact on the size of pension deficits and the ability of FTSE 350 companies to pay the contributions needed to clear these.

As a result, he added: "Companies should ensure they are comfortable with the level of investment risk being taken by their DB schemes and that the appropriate controls are in place to manage these risks."

Problems with DB pensions have been in the spotlight recently, following the collapse of Carillion and the BHS retail chain, both of which had substantial funding gaps in their schemes. The UK Government is currently considering what steps to take in order to make DB schemes more secure.

Meanwhile, some employers appear to be attempting to persuade staff to opt out of their pension schemes altogether. A Freedom of Information request from People Management revealed that The Pensions Regulator received 64 reports in the year to 31 March 2018 alleging that organisations had tried to induce employees to opt out of their pensions, up from 38 the year before.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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UK employers have managed to cut their collective final salary pension deficits by almost half over the last 18 months, research by a pension consultancy firm has revealed.

According to Barnett Waddingham, the combined defined benefit (DB) deficit for FTSE 350 companies fell from £62 billion (US$79.8 billion) to £35 billion (US$45 billion) by the end of June. Shortfalls now account for just 17% of total company profits, down from 70% a year and a half ago.

The reduction is believed to be the partial result of organisations contributing more to their pension schemes, with payments having increased for three years running. But some of the decrease was also linked to better performance of investment portfolios and the fact that the average pension top-up represented just 10% of dividends paid out.

Nick Griggs, a partner at Barnett Waddingham, said: "With the health of the UK and global economy threatened by a lack of progress with Brexit and the threat of a trade war from Trump’s America First assault, there could a major impact on the size of pension deficits and the ability of FTSE 350 companies to pay the contributions needed to clear these.

As a result, he added: "Companies should ensure they are comfortable with the level of investment risk being taken by their DB schemes and that the appropriate controls are in place to manage these risks."

Problems with DB pensions have been in the spotlight recently, following the collapse of Carillion and the BHS retail chain, both of which had substantial funding gaps in their schemes. The UK Government is currently considering what steps to take in order to make DB schemes more secure.

Meanwhile, some employers appear to be attempting to persuade staff to opt out of their pension schemes altogether. A Freedom of Information request from People Management revealed that The Pensions Regulator received 64 reports in the year to 31 March 2018 alleging that organisations had tried to induce employees to opt out of their pensions, up from 38 the year before.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

OTHER ARTICLES THAT MAY INTEREST YOU

New UK-Cyprus double taxation deal sees pension winners and losers

UK pension regulator to clamp down on rogue practices

Wilfully mishandling company pensions could become UK criminal offence

 

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