Oct 22, 2017
UK companies step up battle to rein in pension costs
British companies are stepping up efforts to rein in pension costs with controversial measures aimed at lowering retirement payouts for former staff. With the collective pension deficit - or shortfall between assets and liabilities - of FTSE 350 companies sitting at about £65bn, employers are looking for ways to control their future payout costs. Carillion, a major UK government contractor that employs 50,000 people worldwide and is facing significant challenges after reporting a first half pre-tax loss of £1.15bn, is seeking to cut about £200m from its pension scheme deficit, with measures including a similar move to rebase future increases for pensioners from RPI to CPI. "Companies have poured billions of pounds in deficit recovery contributions in recent years, and taken other steps to de-risk, but deficits are still as stubbornly high as ever," says John Wilson, head of technical at JLT Employee Benefits. The postal operator has said the scheme is "Unaffordable" beyond 2018, when its £400m annual contribution is set to rise to more than £1bn. British Airways remains locked in a legal battle with its pension scheme trustees over discretionary increases awarded to thousands of retired airline workers. The latest CPI inflation figure, used to calculate next year's rises for millions of retired public sector workers, was 3 per cent, compared with 3.9 per cent for the RPI. About two-thirds of the UK's 6,000 private sector pension schemes link retirement income increases to RPI. Consultants say the savings could be substantial by moving to CPI. "We would typically expect to see a reduction in liabilities of around 10 per cent-15 per cent from using CPI for pension increases in payment rather than RPI," says Sarah Brown, principal at Punter Southall, a professional services firm.
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