Pensions - Articles - Funding update for UK private sector DB pension schemes

 Charles Cowling, Director, JLT Employee Benefits, comments: “With interest rates staying stubbornly low, total pension scheme deficits are now almost breaking through the £300 billion barrier. More worryingly for companies and pension schemes with 2016 actuarial valuations, which are typically carried out around now, the pension scheme trustees are likely to calculate even higher pension deficits for the purposes of calculating future pension contributions.

 “In the last couple of weeks two high profile companies – BHS and Tata Steel – have shown the potential pain of these pension deficits. If members of either or both of these company pension schemes end up in the Pension Protection Fund (PPF) they will inevitably end up with lower benefits and the PPF will have some large additional deficits to manage.

 “In a recent interview, Alan Rubenstein, Chief Executive of the PPF, painted a bleak picture for pensions schemes and commented that schemes need to face up to the reality of the difficult position they face. He pointed out that there are three key areas that need to be addressed: trustees must engage with their employer and have some difficult conversations about what happens if interest rates remain stubbornly low; secondly, pension schemes need to focus on risk management and look for opportunities to reduce risk; finally we need to recognise that not all pension schemes will recover from the poor funding positions they are in and they need to start to plan for that eventuality now. Some may think these views are too challenging but Alan makes fundamental points that should be heeded by companies and trustees.”