Deficit payments hit record high of £45bn in 2012

THE AMOUNT EMPLOYERS are paying into pension schemes hit record levels last year as defined benefit deficits continued to warrant cash injections, research from Towers Watson showed.

Employers paid £45bn into pension funds last year, up from £39bn a year earlier and over three times more than the £14bn contributed in 2002, Financial Director’s sister publication Professional Pensions reports

Of this, £41bn was being paid into private sector defined benefit (DB) schemes.

The Office for National Statistics data showed private sector DB membership had fallen from 26% to 8% in the ten years to 2012; meaning contributions were being made to match deficits rather than provide extra benefits.

Senior consultant at Towers Watson, a professional services company, Mark Duke said despite the “huge payments”, companies’ deficits were not falling.

He also questioned how The Pension Regulator’s new objective to support employer growth, announced in last week’s budget (PP Online, 20 March), would affect the pace at which deficits are paid off.

He added: “More money spent shoring up pension benefits promised in the past can mean less money available for wages, dividends and investment in the business.

“The new [TPR] objective may affect how deficits are calculated as well as how quickly shortfalls are eliminated.

“It appears that some employers and trustees may have felt shoe-horned into calculating deficits in a way that makes them especially sensitive to gilt yields, even though the legislation permits different approaches which have also been widely used.

“The mood music from policymakers now sounds more company-friendly and employers will bring that knowledge to the negotiating table.”

The research from Towers Watson was based on data published by the ONS.