Partner Article

Mounting pension costs “damaging economy“

Increasing pension costs are hurting businesses’ ability to invest and create jobs and the Government must act promptly to prevent further damage, according to the CBI.

The business organisation believe that the Coalition must act to address artificially high deficit figures, driven by low gilt yields and a significant increase in the cost of the Pension Protection Fund to businesses.

While the recent implementation of Quantitative Easing and the relative attraction of UK government debt over other European countries has driven down gilt yields, this has also pushed up deficits and will result in no change in the underlying funding position.

The CBI are concerned that companies’ PPF levies could rise by up to 25% next year, which would be damaging to businesses running defined benefit pensions and contribute £36 billion annually to such schemes.

John Cridland, CBI Director-General, said: “A solvent, profitable company as sponsor is the best protection for a pension scheme and its members. Artificially high deficits will only hold businesses back further from investing and creating new jobs because of demands for higher funding from trustees.

“A move of the gilt yield by just 0.4%, can add up to £100 billion in costs to business, despite nothing about the scheme or the employer having changed. This makes no sense – pension schemes have liabilities that run for a century or more and can afford to be more long-term.”

They are now urging the Government to address the issue by smoothing the measure of the gilt yield for businesses, halt a 25% increase in PPF levies next March and ensure than the Pensions Regulator acknowledges businesses’ ability to grow.

He added: “The Pensions Regulator’s main role is to safeguard scheme members’ benefits. And the best way for it to do this is ensuring employers are able to balance the needs of the business with their duty to fund members’ retirement.

“Over-funding diverts essential cash from business investment, which is vitally important to securing economic growth. That’s why we’re calling for the Pensions Regulator to be required to promote growth under a new statutory objective.”

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