PwC figures reveal shift towards pre-recessionary support for pensions
The spectre of unmanageable pension deficits is retreating as the economic recovery gives employers more financial security, according to data from PwC.
The consultancy’s Pensions Support Index (PSI) analysis revealed that Britain’s biggest companies are now in the best position to manage their pension scheme obligations than at any time during the past seven years.
Figures suggest that the economic recovery is now feeding through making scheme payments more manageable.
Before the second half of 2013, the ability to fund this employee benefit among firms in the FTSE 350 had shown little sign of improvement, according to the PSI, which tracks the overall level of financial support provided to defined benefit schemes.
At the start of 2013, the PSI measure showed support had plateaued at 2011 levels scoring 76 out of a possible 100.
And concerns about the sustainability of huge pensions scheme black holes had encouraged many employers, in part, to switch to defined contributions schemes.
However, in the second half of 2013, the PSI rose by 7 points to 83 out of 100 representing a substantially positive shift. And this support has grown further for UK corporate pension plans, as scores are closer to reaching pre-recession levels of 88.
“It’s encouraging that the economic recovery is finally translating into improved company performance and more manageable pension deficits for FTSE 350 companies,” said Jonathon Land, pensions credit advisory leader at PwC.
News of improved PSI scores come a week after the Queen’s State Opening of Parliament, in which the coalition government further outlined measures for the “biggest shake up to pensions for nearly a century”.
The Pensions Tax Bill will allow people aged 55 and over with defined contribution pensions, the ability to withdraw their savings as they wish, subject to marginal rates of income tax and scheme rules.
“So the basic idea is it’s your money and you can decide what you want to do with it,” pensions minister Steve Webb told the CIPD in an interview prior to the announcement.
Webb hopes the new scheme will give candidates more flexibility over their retirement money and certainty over their final pension pot.
“Essentially we get to a situation where if you pay 35 years as contributions or credits…you’re going to get seven and a half thousand quid, basically if you get out of bed,” he said
“And what we’re saying to people then with automatic enrolment in the workplace you save on top of that, and … you’re a bit better off than your neighbour who didn’t save,” he added.
Webb’s optimism for the reforms is largely echoed by pensions experts, but the ACA described the decision not to take forward flexible defined benefit (DB) models as “a missed opportunity.”
The second Bill outlined in the Queen’s Speech, introduced new "defined ambition" collective pension schemes that will allow thousands of people to pay into the same scheme and share the risk, a system largely adopted in countries across Europe.
“On average the volatility of the outcomes is much lower than if you've just got your little pot,” Webb said, but Morten Nilsson, chief executive of NOW Pensions warned the government could be over ambitious introducing several reforms at once.
“Whilst innovations such as collective DC schemes have been successful in Denmark and the Netherlands, both of these markets are highly unionised and have had mandatory or quasi mandatory pension saving for many years.
The UK is a much more fragmented market and while changing legislation to allow these schemes could have merit, in many ways it feels as though we are running before we can walk,” he said.
Listen to the full interview with Steve Webb, pensions minister, here: http://www.cipd.co.uk/podcasts