Firms need extra time to deal with pension deficits
The CBI has urged a change to the pension system in order to allow businesses extra breathing space in which to make good the shortfalls in their final salary schemes.
The employers’ organisation wants the Pensions Regulator to give firms that are struggling to repair gaps in their funding 15 years to handle any deficits rather than the current ten.
This, the CBI said, would allow companies to deal with any deficits over a longer timeframe, a move that in turn would enable them to use a greater share of essential cashflow for maintaining jobs and investment during the recession.
The call forms part of the CBI’s eight-part action plan on pensions.
Volatility on the stock market has meant that spot valuations for pension funds can be misleading, the CBI argued. This has left schemes facing huge swings in their financial position on a day-by-day basis when, in practice, little had changed.
Instead, longer-term fund valuations would better reflect the underlying position of pension funds, and would prevent firms having to shift money from coping with the economic downturn to correcting pension deficits.
John Cridland, the CBI’s deputy director-general, said: “Firms who are fighting to preserve final salary pensions find themselves punished by regulation and much worse off than firms who offer no pension at all.
“Longer recovery periods will help firms keep their commitment to pensions without forcing them to divert critical cashflow. The Pensions Regulator needs to send a clear signal to trustees by investigating recovery plans longer than 15 years, instead of using the current ten-year trigger. Businesses are badly winded by the recession and, when it comes to their long-term pensions issues, they need a bit more time to catch their breath.”
Also as part of its plan, the CBI urged the government to introduce a greater degree of flexibility into the pensions system, making it easier for employees to work longer than the state retirement age of 65.
Additionally, the Treasury should review its plans to tax employers’ pension contributions as part of its reform of tax relief for pensions, while poorly drafted pensions laws need to be amended.