Burden of pensions for ex-staff mounts

BLUE CHIP companies are now being forced to spend more covering shortfalls on the pensions of former staff than they do on the future pensions of existing employees, according to research released yesterday.<br /><br />Within five years, payments made to top up the pensions of previous employees will outstrip those for current staff by a ratio of four to one, the report from accountancy giant KPMG says. At that point, &pound;4 out of every &pound;5 will be spent covering past liabilities.<br /><br />And the report shows that 22 per cent of FTSE 100 firms are now unable to plug their pension deficit using day-to-day cash flow.<br /><br />Defined benefit pension schemes, where firms and employees agree a set income to be paid on retirement, have suffered after pension fund investments tumbled in the recession, forcing companies to plug the shortfall.<br /><br />KPMG pension partner Mike Smedley said the group&rsquo;s fourth annual Pensions Repayment Monitor has discovered an &ldquo;unprecedented&rdquo; shift to firms spending more on ex-staff schemes. &ldquo;The fact that we are now reaching this point graphically illustrates the increasing unaffordability of defined benefit schemes,&rdquo; he said.<br /><br />Only 12 FTSE 100 companies now show a surplus on their schemes, compared with 21 at this point last year, the accountancy giant said.<br /><br />But KPMG added if dividend payments to shareholders were suspended and spare cash flow was allocated to pension schemes, over 94 per cent of the FTSE 100 could pay off their existing deficits in just one year.