Pensions - Articles - Despite volatility markets remain rather benign for pensions

 Charles Cowling, Director, JLT Employee Benefits, comments: “Despite some significant increases in volatility, markets continue to be reasonably benign for pension schemes and overall reported pension deficits are largely unchanged from twelve months ago. However, this positive picture still masks ongoing challenges for a number of companies with large pension schemes, for whom Carillion remains a stark reminder of what can go wrong.

 “One of the key problems for many companies is that the pension deficit calculated by scheme trustees, which determines the cash funding required to be paid by the employer, is significantly greater than the pension deficit reported in the employer’s accounts.

 “This month saw the long-awaited publication of the Government’s White Paper on Protecting Defined Benefit Pension Schemes. Many commentators were disappointed with its recommendations and saw it as a bit of a damp squib. However, it is promising a stronger Pensions Regulator and an increase in the protection of members’ benefits. This confirms our belief that the Pensions Regulator will take a tougher stance in its 2018 Annual Funding Statement on companies, prioritising dividends to shareholders over contributions to pension schemes.

 “The White Paper also anticipates a new Code of Practice from The Pensions Regulator which will focus on how prudence is demonstrated when assessing pension scheme liabilities. Many will see this as a signal that unless the employer has a demonstrably strong covenant, the Regulator will expect trustees to take a more judicious and measured approach in actuarial valuations – which will most likely result in a need for companies to pay more in contributions.”