Back to no future

It’s déjà vu all over again, as celebrated American baseball player Yogi Berra once said. Just when we were all getting used to the chaos in the market, along comes the sucker punch of a second bank bailout that has left UK plc spooked once more and sterling under increased pressure.

The future for Britain’s employers and employees is looking bleaker by the day. Some will point out that this is exactly the steep fall into recession that has been predicted since September 2008 saw the collapse of a series of financial giants and the quasi-nationalisation of banks on both sides of the pond. But predicting a recession in the future is a lot easier to deal with than living through it. Confidence is evaporating fast.

The collapsing economy is already having its toll on the business that corporate intermediaries are conducting. With unemployment topping 1.9m, its highest level since the turn of the decade, employee numbers, and therefore premiums, are already seeing some reductions. Furthermore, many corporate IFAs and EBCs I speak to are seeing clients talk about, or even put in place, contribution holidays on DC pension plans. Better to put off pension saving today than miss out on a payrise is the argument that sits well with staff. But how and when these contributions are put back on stream will be important.

And attendees at the second Group Risk Adviser Forum, covered in full in this issue, were all in the position of talking to employers about reducing benefits, whether taking core benefits away altogether or restricting entry criteria. That the industry faces a contraction in terms of premium income seems certain.

All this is of course founded on the fundamentals in the economy. While the joke going around Dublin right now may be “What is the difference between Iceland and Ireland? The letter C and six months,” the UK is facing serious questions over the long term.

Pressure on benefits is nowhere more keenly felt than in the domain of final salary pensions. Last month the CBI was moved to call for calm from trustees and investors in relation to final salary pension deficits, lest they should bring good businesses down. But some final salary scheme deficits are so high that if the recession turns into a slump it is hard to see how sponsoring employers will ever be able to pay them off. Drastic measures such as watering down indexation protection could force their way back onto the policy agenda. To borrow another Yogi-ism, the future ain’t what it used to be.