Governance
Defined Benefit pension pressures worry UK Plc |
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| Governance | |
| Written by Roberta Murray | |
| Wednesday, 14 July 2010 | |
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Regulation could force British companies to put about £500bn of extra money into their final salary pension schemes.
Directors and senior management are feeling increasingly nervous about the risks of their Defined Benefit pension arrangements to the future wellbeing of their organisations, suggests the findings of a new study. It is the CBI’s view that this could force British companies to put about £500bn of extra money into their final salary pension schemes. The study reveals that nearly one in ten respondents (9.1%) now ranked DB pensions as the highest risk to their businesses, with half ranking it in the top 3 of all business risks. Nearly two thirds of respondents (60%) revealed that they are not feeling confident that they have done all they could to mitigate the risk of their arrangements. One in five respondents reported that they were concerned about the liabilities associated with their DB arrangements and felt that they did not know the true risk to their business The study was undertaken amongst directors and senior management at a broad spectrum of UK businesses of varying sizes, including FTSE 100 plcs, which together account for some 300,000 employees,. The report also reveals that: · more than 40% of respondents have yet to decide on a definite course of action to manage the risk of their DB arrangements; · internal resourcing is a big concern when it comes to closing DB pension arrangements to new entrants/future accrual - around one in five respondents indicated that they were not satisfied that they had the necessary internal resources in place; · nearly half of respondents did not know how long such a project would take to close their DB pension arrangement(s) to future accrual; · employee relations was seen as the biggest concern of closing a DB scheme or severing the link to final pensionable salary, followed by managing the external reputation of the business, dealing with trade unions and staff retention. Robert Purse, Chairman of Pension Review Associates says: “Indications are that private sector Defined Benefit (DB) pension arrangements have a combined deficit of £200bn. IAS 19, if unchanged, will increase that deficit by a further £25bn. Consequently there has been a massive increase in the number of organisations looking to reduce their pension liabilities and their cash commitment to DB pension schemes. “This study throws new light on the perceived level of risk that DB pension arrangements represent for UK plc, potential barriers to risk mitigation and the risk management practices that are being deployed. “In doing so the research is designed to help inform any organisation reviewing its DB pension arrangements and to minimise threats posed by the arrangements to the future wellbeing of their organisations.”
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