Pension woes could hit jobs, says BOE

UK – Pension deficits may hit UK companies’ investment, dividends and employment, according to Bank of England analysis.

Information presented to the central bank’s interest-rate setting committee earlier this month suggested that companies might want to increase their net saving further to offset deficits in defined-benefit pension funds “in the near future”.

Such a move might mean further cuts in planned investment, dividends and employment, the analysis – prepared by BOE staff, said.

It added that ‘old-economy’ enterprises were finding it toughest. “Companies in declining sectors of the economy had particularly tough challenges in financing defined-benefit pension funds.”

The data also said that companies see their pension problems as a more serious issue than higher employment costs.

A planned increase in national insurance payments were viewed by many firms in the same way as any other additional costs. Pensions were more of a worry.

“Pensions had remained a more serious issue for many companies,” the analysis said. It was presented to the bank’s Monetary Policy Committee on April 4 prior to its meeting on April 9-10.

The bank kept its main interest unchanged at 3.75% after the meeting.

In February the committee saw data that suggested an increase in labour costs, which probably reflected companies’ concerns over pensions and the new national insurance contributions.

Such worries are borne out by a survey released today by actuarial consultant Hazell Carr, which found that the pension funds of small and medium sized businesses are in deficit by billions of pounds.

The firm surveyed 100 companies with 1,000 employees or less and found that 47% had closed their schemes to new members. A further 17% of open schemes intended to close to new members in the next year.

Forty-two percent of companies with open schemes have not received any advice from their actuaries about closing or winding-up their scheme.

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