UK - Pension schemes are caught in a "deadly financial pincer movement" by dividend freezes on company shares, delegates at the recent City Forum's ‘Pensions in Crisis' debate at the National Liberal Club, Whitehall, were told.
Frank Field MP, a founding member of the Pensions Reform Group, said dividend freezes were often needed by companies to help pay for their pension fund deficits.
“Pension schemes are caught in a deadly financial pincer movement – firms are coming to realise that their pension deficits are now unbridgeable unless a dividend freeze is declared into the distant future.”
But he explained that not only would dividend freezes make boardroom positions unstable, but that the largest drawers of dividends were pension funds, which depended on the returns to pay pensions.
Field also pointed out that companies with schemes below the minimum funding requirement were least likely to close them due to the costs of meeting their pension liabilities.
He added that these deficits were likely to escalate, so that any future legislation to compel firms to make up the shortfall could push firms into liquidation.
Field urged two pension reforms – one to help the funding of defined benefit pensions and another longer-term reform to ensure that the UK had the “solid foundation” of an adequate first-tier pension.