Final salary pensions face £225bn bill

Trustees could be asking for £45 billion a year for the next five years to shore up deficits in pensions according to Aon Consulting.

Aon says 2009 is set to be the bleakest year yet for companies sponsoring defined benefit schemes. Its index of the 200 largest private sector schemes showed a deficit of £15bn at end of October, a fall of £9 billion. It puts total asset losses for all the UK’s 8000 final salary schemes of £226 billion over the last year. The Aon200 Index shows that 64 per cent of schemes are now in deficit.

Aon is warning that pension scheme accounting measures are fundamentally flawed in the current economic climate and they mask the true extent of the massive losses that are being suffered. As such, companies are already facing a triple whammy assault on final salary schemes as a result of the financial crisis it says.

It argues the poorer economic outlook is making trading conditions difficult, forcing pension scheme trustees to view the sponsoring employer as weaker and seek higher contributions to secure pension scheme benefits.

This is compounded by the fact that liquidity problems are creating considerable cash pressures for companies, making it harder for companies to meet their agreed contribution levels, says Aon.

Falls in equity markets around the world have led to significant asset losses in the value of the final salary pension schemes themselves.

Marcus Hurd, head of corporate solutions at Aon Consulting, says: “Just as employers thought the economic news couldn’t get any worse, they are likely to be hit by more big bills to pay for their pension schemes when they can least afford it. If all final salary pension schemes were assessed for financial adequacy right now, then it is likely that contributions would soar by an additional £45 billion a year for the next five years.