Businesses say DB costs harming investment

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The cost of running a defined benefit (DB) scheme is preventing firms from investing, according to research carried out by the Confederation of British Industry (CBI).

The business lobby's biennial pensions survey, A View from the Top, found seven out of 10 companies said the costs were stifling investment plans. For manufacturing firms the figure rose to eight of 10.

Almost half (46%) of businesses surveyed said operating a DB scheme had hindered their ability to borrow and six out of 10 said employer debt regulations had got in the way of internal or external restructuring.

Despite this the CBI found a sharp reduction in the number of employers planning to make changes to, or close their schemes. Almost two thirds (64%) of companies said they had no action planned for the next two years.

CBI director of employment and skills Neil Carberry (pictured) said: ""The cost of DB schemes is having a serious adverse impact on business investment, which must be the cornerstone of our economic recovery if we are to achieve sustainable growth.

The survey covered 226 chief executives and board members in companies with £362.2bn in pension assets. Fifty-one of the firms had a DB scheme.

Most of those with DB schemes (97%) were concerned about the impact of market volatility on funding levels, while almost nine out of 10 (88%) were worried about contribution increases at their next valuation.

The survey also revealed most employers (73%) backed The Pensions Regulator although a growing percentage (28%) was unsatisfied with the watchdog's performance.

Almost nine out of 10 (88%) said the regulator's approach had not changed since the government announced its intention to introduce a new statutory objective.

Carberry said: "TPR's new objective to minimise the adverse impact of scheme funding has yet to have a positive impact. The regulator needs to raise its game and ensure a material change in its day-to-day dealings with employers and trustees flows from its new legal duty."

The survey also covers the continuing shift to defined contribution, and concerns about the cost and compliance burden of auto-enrolment. Click here for analysis.

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