The cost of running a defined benefit (DB) pension scheme is stifling the investment plans of seven out of 10 UK businesses offering them, according to a survey by the CBI and Standard Life Investments.
The Pensions Regulator’s new target to minimise the negative effect of scheme funding has had no effect yet, and it needs to change the way it deals with employers and pension scheme trustees, the CBI said.
Neil Carberry, director of employment and skills at the organisation, said: “The cost of DB schemes is having a serious adverse impact on business investment, which must be the cornerstone of our economic recovery if we are to achieve sustainable growth.
“The regulator needs to raise its game and ensure that a material change in its day-to-day dealings with employers and trustees flows from its new legal duty.”
Last week, the regulator launched a consultation on its oversight of the DB market to better account for the current low interest rate environment and growing maturity of many funds.
The consultation on the new code of practice, open until early February, will also seek to incorporate the regulator’s new statutory objective requiring it to have a “regard for the growth prospects of companies”.
The CBI’s survey polled 226 chief executives and board members in companies with £362.2bn (€432.2bn) of pension assets under management.
Some 70% of survey respondents with DB schemes reported that the cost of the schemes was having an impact on business investment, with that percentage rising to 78% among manufacturers.
Nearly half of respondents (46%) said operating a DB scheme was restricting their ability to borrow, and six out of 10 companies said employer debt regulations were hampering internal corporate restructurings, M&A activity and asset sales.
But the survey also found that DB provision seemed to have stabilised following the financial crisis, with 64% of companies saying they did not plan to make any changes to it.
However, some 88% of respondents were concerned about the prospect of contributions going up in their next funding agreement with trustees.
The survey also found that the number of respondents dissatisfied with the Pensions Regulator’s dealings with their company had more than doubled to 28% from 12% in a 2011 survey.
Eight out of 10 businesses said they had yet to see a change in behaviour from the regulator or trustees since the introduction of the new statutory objective.
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