The financial difficulties faced by textile firm Dawson International as a result of its large pension liabilities show how important it is for companies to have a clear strategy for de-risking their pension scheme, according to Malcolm McLean, a consultant at Barnett Waddingham.
The cashmere manufacturer is expected to be forced into administration in the next few days in the face of a £50m pension fund deficit. With just 60 active members of the scheme, Dawson has only been paying £400,000-a-year in regular contributions.
However, with over 3,500 former workers and pensioner members in the scheme, the firm has also had to pay in the region of £1m more a year to keep the scheme running.
The firm had sought to enter its defined benefit scheme into the Pension Protection Fund, but this was request was rejected last month.
Mr McLean said:'Dawson is not the first and probably won't be the last company to come adrift as a direct result of its pension legacy. Reducing the size of the company's operations and its attendant workforce doesn't cancel out all the pension liabilities that have built up over the preceding years.
'In fact those liabilities are likely to grow as more and more former workers with preserved rights within the scheme reach retirement age and claim their pensions whilst improving longevity rates mean they and existing pensioners increasingly live longer lives.'
Employers should be more proactive in managing their pension liabilities, he said, and should also establish a clear strategy to de-risk their scheme over time.
'The Dawson International case has shown how deficits can quickly grow out of control particularly where the sponsoring employer is shrinking,' he added.
'Some of the more sophisticated de-risking techniques that have previously only been available to the largest employers, should be considered, in a proportionate way, by all employers.'