Corporates 'overpay' nervous trustees
UK - "Nervous" corporate pension scheme trustees and actuaries should not demand more cash injections from their corporate sponsor amid the market turmoil as companies are already pay too much, according to KPMG.
KPMG's 2008 Pensions Repayment Monitor reveals the pension funds of Britain's top companies are in good health - despite the credit crunch - though warned the market conditions could spook trustees into demanding more cash sooner "to shore up the growing perceived deficits".
The demand for extra discretionary cash could put extra strain on corporate balance sheets during the economic slowdown, and may not be the best strategy in the current economic climate, suggests KPMG.
The company's study warned despite deteriorating market conditions adding around £20bn (€25bn) to the FTSE 100's pension accounting deficits in the first half of this year, around six out of ten FTSE 100 companies might be paying too much into their pension schemes, with up to half overpaying by over £20m a year.
Mike Smedley, a pension partner at the firm, commented: "We are heading for a ‘pensions crunch' as nervous trustees demand more cash from companies just as those companies have less of it."
According to KPMG, the demand for extra cash stems from trustees' desire to take a more cautious view in the current uncertain economy.
"However, cash diverted into the pension scheme is not available to the rest of the business and KPMG's 2008 Pensions Repayment Monitor suggests six out of 10 FTSE100 companies are paying more into their pension schemes than is actually required to clear the deficits within a reasonable (10 years) time period," KPMG said.
Smedley conclude it is a question of timing: "At a time when cash is plentiful, using it to clear debt can be a very good idea," adding how trustees react to a sustained fall in the markets can have a profound effect on a company.
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