British business still too weak to fund pensions

Michael Bow
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BRITAIN’S biggest businesses are struggling to support their defined benefit (DB) pension schemes despite rising stock markets and renewed confidence in the economy, a study out today reveals.

The ability of FTSE 350 companies to fund their DB schemes – a type of pension plan tied to final salary – has failed to rally alongside rising markets, the report from PwC says, despite the FTSE 350 index rising 13 per cent this year and the UK economy returning to growth.

PwC said its Pensions Support Index hit a score of 76 this month, only marginally higher than the 74 recorded six months ago and well below the pre-recession level of 88 points, the figures show.

And the stall in recovery for the pension landscape means pension scheme trustees should consider a more innovative approach to deficit funding.

PwC pensions partner Steven Dicker said trustees should consider using asset backed contributions to support funding plans.

“They need to get proactive and look for ways to improve their investment performance and more innovative funding mechanisms,” Dicker said.

“Without action defined benefit pension obligations will remain a huge drag on companies’ balance sheets and could halt their growth prospects.”

PwC constructs the index – which it publishes every six months – measures the ability of FTSE 350 companies to fund their pension schemes based on a their balance sheet, profit and loss accounts and cash flow.

The so-called employer covenant is one of the most closely watched areas by The Pensions Regulator (TPR), which was given the task of monitoring the strength of companies responsible for burdening the weight of schemes in 2004.

PwC added that moves by TPR to take a more joined-up approach to scheme funding would help companies comply with funding support rules.