Companies need at least 11 more years to meet their pension shortfalls despite diverting more cash into their schemes, PricewaterhouseCoopers said after conducting an analysis that found low government bond yields were to blame.
A PwC poll of 150 UK defined benefit schemes with total liabilities of over £200bn revealed that low government bond yields were still largely used by pension schemes to discount future pension payments. It found that relevant government bond yields had dropped from 4.6% p.a. to 2.9% p.a. between 2010 and 2013.
'Pension schemes are still suffering from the effects of low gilt yields and an uncertain economic backdrop,' said Paul Kitson, a partner in PwC's pensions advisory team.
'Despite early signs of economic recovery, companies are still ploughing considerable amounts of cash into their pension scheme just to manage the deficit. This means money that could be reinvested in the business to promote growth, jobs or the strength of the company is too often being tied up in the pension scheme.'
PwC said that companies with an actuarial valuation in 2013 would need until 2024 to repay their pension deficits.
Nearly two thirds (63%) of schemes said they had extended the time it would take to reach full funding by three years or more in order to deal with an increased deficit, PwC found.
The research also revealed that over two thirds (69%) of pension schemes have increased their contributions since their last valuation. PwC added that schemes with valuation dates in 2013 have particularly suffered, with over 70% seeing a worsening of their funding position since their last valuation despite having pumped significant cash into their schemes since then.
Only 14% of respondents with valuations in 2012 or 2013 have an unchanged or shorter period to reach full funding than at their last valuation, said Pwc.
Elsewhere in the report, PwC noted that the Pension Regulator’s 2013 funding statement highlighted the flexibilities that are available to employers struggling to close their scheme deficits. However, PwC found these options were little used in practice.
Kitson continued: 'The survey shows that there is considerable scope for UK pension schemes and their corporate sponsors to set funding plans that provide security for members and flexibility for businesses to benefit from any recovery, which will ultimately benefit the scheme members.'
