Recession Hits Pension Schemes as Deficits Show Large Increase

The total deficit in the pension schemes of the FTSE100 amounts to £90bn at 30 June 2009, according to estimates from Pension Capital Strategies (PCS). This compares with an £8bn deficit 12 months ago and a deficit of £50bn at the end of April.

This record level of deficit comes at a time when the Pensions Regulator has just issued a statement encouraging pension trustees to be increasingly prudent. In particular the Regulator is demanding that when companies get into difficulties, the trustees should respond by toughening the assumptions used to calculate the pension scheme deficit to show an even larger deficit.

Charles Cowling, managing director, PCS, said: “These are very difficult times for companies and their pension schemes. We believe that the Regulator’s stance of demanding that trustees react to the economic downturn by putting even more pressure on companies is a mistake. The Regulator’s narrow view of prudence does not recognise that the wider interests of pension schemes and employees (which are reliant on the continuing viability of the employer) may be best served by taking a less aggressive stance. It is not surprising that companies are reacting to this combination of tough economic conditions and an increasingly unfriendly Regulator by closing down final salary pension schemes. We believe that within the next two to three years the very large majority of final salary pension schemes in the private sector will be closed to all employees.”


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