Member Article

CBI warns not to overreacting to pensions debts

Extra pressure on firms who run defined benefit ‘final salary’ pension schemes could weaken sound businesses at a critical time and hamper the UK’s economic recovery, the Confederation of British Industry (CBI) warned this week.

The UK’s largest employers’ group fears that investors, trustees and the government will overreact to growing pensions deficits caused by the downturn.

Government figures show that although in June last year defined benefit pension schemes were £53.4bn in surplus, the tumbling share prices caused by the economic slowdown and credit crunch have pushed them £194.5bn into the red.

Those deficits are beginning to play on investors’ minds, and the CBI fears that they will not allow for the longer-term, secure nature of this pensions funding, and will mark those firms down.

This could spark a vicious circle whereby shares fall further, pension liabilities grow again, trustees ask for more money up front from stressed firms trying to weather the recession, cutting business investment and performance, and thus forcing shares even lower.

Sarah Green, Regional Director, CBI, said: “Longer lives and complex rules have made final salary pensions very expensive at the best of times. Many firms are committed to keeping their schemes running, but that becomes especially challenging during a recession.

“An overreaction to deficits could be a factor in sending some firms under, and leave the rest struggling for capital at a time when they need it most. We urge investors and trustees not to feed the fire. Instead they should step back from these spot valuations, and recognise that the deficits are a snapshot indication that does not reflect the full picture.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .