UK - Companies will not be spared from continued large contributions to their pension schemes as trustees plan to increase funding targets by an average of 10%.
This was revealed in a survey of over 160 pension schemes conducted by Mercer Human Resource Consulting.
Following legislation introduced last year, trustees completing their acturial evaluations planned to increase their funding targets which were expected to approach the pension liabilities shown in company accounts.
According to Mercer, the average target was set to increase from 92% of liabilities under FRS 17 and International Accounting Standards to 100% of liabilities.
Therefore, taking into account that FRS and ISA targets will also be going up, the typical rise in funding targets will be around 10%.
The survey showed that the bulk of the increase, equating to around £75bn in total, will most likely come from sustained contributions increases over the next 10 years.
Mercer said the change in funding targets was fuelled by the coming into effect of the statutory funding objective under the Pension Act.
“The bar has been raised and more stringent targets have been put in place,” said Tim Keogh, worldwide partner at Mercer.
“Employers, as well as trustees, are responding to the new regulations, and accept they need to continue digging deep into their pockets to pay off scheme deficits and deliver greater benefit security for members,” he added.
The Mercer study also showed deficit recovery periods were being tightened. Although 51% of employers expected to pay off their pension deficits within a 10-year period, 29% of respondents had recovery plans of five to nine years. Of the schemes questioned, 8% had a recovery period of one to four years.
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