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28 Oct 2015

UK company profits being hit by final salary pensions

Businesses across the UK are struggling to manage the costs of final salary schemes, Reuters notes, with reports of a negative impact on their profit margins.

According to new research conducted by Mercer and the Confederation of British Industry, the large majority (82%) of senior professionals at the 166 UK businesses surveyed said that dealing with the financial implications of final salary pensions schemes was directly affecting their company´s bottom line.

Consultants Hyman Robertson explain that defined benefit - or final salary - pension schemes have a collective liability of more than £2 trillion.

And with figures from the Pension Protection Fund showing that the combined deficit of these schemes came to over £300 billion by the end of last month, this means that schemes were only 80% funded.

In comparison, data from the last time this survey was conducted shows that the deficit was just over £100 billion two years ago, with a 90% funding rate.

Continuously low interest rates have exacerbated the problem and left many schemes in the red, causing many organisations to close the schemes for new members. What´s more, over a fifth (21%) are also closing them to existing members.

In the report, Mercer´s chief executive Fiona Dunsire explains that “market volatility” was cited as a “considerable challenge” for British businesses, and that despite increased contribution amounts over the past few years, there remains an “anxiety over funding levels.”

Elsewhere in the study, it was revealed that more than three quarters (78%) of the firms surveyed would offer more flexible working hours as one way to deal with the UK´s ageing workforce.

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