Pension commitments a serious concern to four-fifths of UK companies

Four out of five of companies are concerned about the impact of their pension commitments on cashflows and almost half are worried about strain on dividend payments, according to a new survey.

Pension scheme funding is proving a huge concern for UK companies, according to a PricewaterhouseCoopers LLP survey of around 100 organisations conducted in November 2008. It found 80 per cent of survey respondents are concerned about the impact on their company’s cashflows of cash funding commitments to their UK pension scheme and 45 per cent are worried about potential impact on their ability to pay dividends. Of the 29 FTSE 100 companies surveyed, these figures rise to 86 per cent and 69 per cent respectively.

Across all respondents, 86 per cent are also concerned about their company’s lack of control or influence on their cash funding commitments. The Pensions Regulator’s stance on scheme funding prudence is a concern for 81 per cent of companies surveyed.

On the subject of what they want to change about their next scheme funding negotiations with the pension scheme trustees, approximately a third of companies, 32 per cent, state they want to change the extent to which they control the process while 38 per cent plan to use their advisers differently. Two in five perceive the way they manage their trustees’ perception of their employer covenant as an issue and 45 per cent will be more explicit with the trustees about the sponsoring company’s objectives and constraints.

Marc Hommel, partner and UK pensions leader, PricewaterhouseCoopers LLP, says: “Cash is in short supply so some organisations need to find a way to unwind their existing pension scheme cash funding commitments.

“It is in the long-term interests of scheme members that sponsoring organisations survive the downturn, which means that some trustees will have to accept short-term reductions in funding and increased use of back-end loaded commitment or contingent assets, such as property, in lieu of immediate cash.

“Many sponsoring organisations are regretting the cash commitments they made in their most recent scheme funding negotiations, and are determined to put in place something more robust and durable at the next scheme funding negotiations. Employers need to be far more assertive in helping trustees understand the company’s objectives and constraints. We will see far more imaginative and flexible scheme funding agreements that provide protection to pension schemes while recognising the reality of the current economic environment and the adverse affordability position of many sponsors.”