UK - UK defined benefit (DB) pension schemes could be among the "indirect casualties" of the fall out from the US sub prime crisis, following information released by the Bank of England.
The warning comes on the heels of a publication from the Bank of England Credit Conditions Survey for Q3 2007 which reported that lending to the corporate sector had been reduced.
As a result, fees, commissions and interest margins have increased and lenders are expected to impose stricter covenants, seek additional security and reduce credit line limits.
In terms of the implications for pension schemes, David Poynton, head of credit analysis at Lane Clark & Peacock LLP, said: "For pension fund trustees, the key to deciding an appropriate approach on funding and investment issues is a clear understanding of the situation. The crucial first step is engaging with the employer to obtain the best possible understanding of its financial position and any impact from the tightening of credit markets - and what the options are for addressing the situation."
He added: "This means that many sponsoring employers will be faced with increased costs of financing, as well as lenders looking for additional security for their lending. Shareholders are the most obvious losers from these developments but the additional financial strain on employers can also weaken the security of pension benefits."
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