FDs say pension scheme deficits hamper investment

THE MAJORITY of finance directors and senior leaders say scheme deficits are hampering their business investments, research shows.

The report from Mercer and ICAEW found that 57% of respondents said their defined benefit scheme will have a negative impact on financial performance in the next three years, Accountancy Age’s sister publication Professional Pensions reports.

It also found the top concerns for FDs are the impact of low gilt yields and the level of funding required to reduce deficits.

Investment strategy and performance, along with volatility in deficit sizes, were the other top concerns.

The report said quantitative easing had increased liabilities through depressing gilt yields while making it expensive for companies to implement risk-mitigation strategies.

Mercer senior partner Ali Tayyebi said the research showed a paradox, and companies “face a quandary”.

He added: “The current environment which emphasises the need for a clear risk-management strategy is also the one in which it is most difficult to implement de-risking strategies.

“Our survey confirms a strong recognition of the need to take action and progressively mitigate or reduce pension risk. Almost 80% of respondents either already have or expect to have a glide-path or journey plan of de-risking triggers in place over the next three years.”

A fifth of respondents plan to offer enhanced transfer values exercises or implement a buy-in or buyout in the next three years as part of a risk-mitigation strategy, the survey showed.

ICAEW executive director Robin Fieth said companies face huge pressures to put cash into deficits but stressed they take a proactive approach to meeting obligations and conserving cash for investing in growth.

He said: “We believe that The Pensions Regulator may in future need to allow companies with schemes like these to take more account of wider economic factors when considering the duration of recovery plans.”

Earlier this year, Morgan Stanley research suggested firms with the largest deficits under-perform the market by 28% (PP Online, 14 Aug).


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