Companies could be required to find large sums to top up UK pension funds after new figures showed that more than £10bn was added to the combined deficit of the UK’s final-salary-style schemes during March.
With the coronavirus shutdown causing mayhem on companies and stock markets around the world, the total deficit of the UK’s 5,422 defined-benefit schemes increased to £135.9bn at the end of March, up from £124.6bn at the end of February, according to the latest data.
Millions of retirement savers have been left tending big losses because of the coronavirus pandemic, though payouts are guaranteed for some fortunate beneficiaries. With a defined benefit pension scheme, the amount a person eventually receives is based on how many years they worked for their employer and the salary earned. The employer is responsible for ensuring there is enough money at retirement to pay the pension income.
While such figures may make some scheme members uneasy, the most important thing in most cases was not the value of any deficit today, but the ability of an employer to survive long enough to pay out pensions now and in the future. From a company perspective, bigger defined-benefit deficits are a problem because they could threaten to divert cash that would otherwise be used to fund growth plans and reward shareholders.