UK deficits have ‘no link’ with sponsor strength
UK – Standard & Poor’s have analysed the top 500 defined benefit schemes in the UK and found there is no correlation between the size of deficits and the credit strength of the sponsor.
The analysis follows a survey from SEI Investments which found that more than half of UK companies said pension liabilities are having a negative impact on their business.
S&P found there was “no correlation between size of deficit and sponsor credit strength”.
“This should be cause for concern, particularly in the light of the Pension Protection Fund’s methodology for the risk-based levy, which will reflect both factors”.
It said the primary threat to pension schemes is the insolvency of the sponsor and that little account appears to have been taken of the sponsor’s financial strength in funding and investment policy.
And it found that many schemes have high-risk investment strategies “without the security of a strong employer”.
It said that the combination of large deficits and an average of 63% equities “indicates high tolerance of the risk of asset/liability mismatching”.
S&P advised that the new Finance Act will mean that a fundamental change in that trustees will have to consider the financial strength of the sponsor of the scheme when making funding and investment decisions.
SEI said 71% of firms said profitability was being affected while almost a third said their pensions liabilities had caused a reduction in both their share price and dividend payouts.
And it found that half of the companies it surveyed want more accountability from their pension fund advisers.