Research published by Mercer yesterday announced that the combined deficit for pension schemes belonging to FTSE 350 companies increased by £19 billion during April to a staggering £108 billion. That’s a year-to-date deficit increase of 50%.

Rising pension deficits are of course something that we have become used to but how long can companies ignore their pension obligations before they are forced to make tough decisions in an attempt to get out of the hole they find themselves in? But even if companies do take their deficits seriously, rather than passing them off as an effect of poor market conditions, what more can companies do?

Not many companies have the capacity to pump the billions needed to get their schemes in a position of full funding and most have already closed their schemes to new members, increased retirement age and amended the levels of indexation members receive. All of these measures do help to reduce pension liabilities although we must remember that just because the liabilities reduce it is not necessarily the members who benefit. In fact by increasing retirement age and reducing the level of annual pension increases it is members who are paying the price and will feel the true effect of these changes in their retirements.

Despite all of these changes liabilities have continued to grow and the resulting deficits have reached large enough levels to make even the most hardened financial director sweat. Unfortunately any further action taken by companies to try and reduce their deficit is likely to again be at the detriment of members. There is growing discontent among members of these, once considered gold-plated, pension schemes who are increasingly feeling misled to as the promises they were made when they joined are continually broken and who can blame them.

Nigel Green devere group

Blog written 14th May