Over 27% of trustees with defined benefit pension schemes currently in deficit believe that their funds will still be in deficit in 10 years' time, according to 2008 Trustee Survey report released by Aon Consulting.
Aon surveyed 250 trustees of defined benefit schemes, asking them a variety of questions about their attitudes and responsibilities.
These findings would fall foul of the expectations laid out in the regulator’s comments supporting the scheme funding legislation laid out in the Pensions Act 2004. Within this he set out his intention to focus on schemes with plans to clear deficits over a period of longer than 10 years. Although the Regulator said he will seek to be flexible, these schemes should expect to attract further scrutiny.
In a statement Aon said that it is concerning that over a quarter of trustees with schemes currently in deficit consider it likely that the deficit will still be there in 10 years. This goes against the expectations of the regulator and, more importantly, implies that over a quarter of companies with final salary schemes cannot afford to make good the deficits over the 10 years. While there may be good reasons for not meeting these expectations – and the regulator has said that he will take these into account – clearly he will want to take a closer look at these pension schemes.
On the plus side, there are still many avenues left for trustees to explore in terms of finding ways to address their deficits. Many have yet to look at the implementation of contingent funding arrangements, for example, which could have the added advantage of reducing Pension Protection Fund levies.
In contrast, despite market volatility, which has seen millions wiped from pension funds, the survey finds that the majority of trustees are in fact bullish about the long-term prospects for their schemes, with over half of those currently in deficit believing that their schemes will be in surplus in a decade’s time.
Of these, nearly two thirds attributed the improvement to contributions to be made by the sponsoring employer. Just over a quarter thought that it would come through improved investment performance.
Paul McGlone, principal and actuary at Aon Consulting, said: The bullish attitude of a large proportion of the surveyed trustees is encouraging and reflects the belief that schemes are, in the main, adequately funded by the sponsoring employer.
These trustees seem to have embraced the recent scheme funding legislation, which promotes open communication with the employer over the funding of the scheme. This could be the reason why most believe that their deficits will be eradicated by additional employer contributions.