Pensions deficit hits record levels

Final salary pension schemes in the private sector were underfunded by £219 billion last month, new figures have revealed.

According to the Pension Protection Fund (PPF), set up to protect pension members should their company scheme fail, the collective deficit of the 7,800 schemes increased from the £191 billion recorded a month earlier.

The PPF said that just 9 per cent of final salary schemes have a surplus, with 91 per cent running a deficit.

Falling share prices wiped 5 per cent from the value of pension scheme assets in February alone.

In response, the CBI argued that employers should be allowed to fund their pensions over longer periods of time.

Katja Hall, the CBI’s director of employment, said: “The increase in pensions liabilities this month reflects the current volatility in financial markets.

“The government and the Pensions Regulator must allow firms to take a long-term approach. If they do not do this, firms could be forced to make large contributions to their pension schemes when they can least afford them. This would not be in the interests of pension funds, companies, the economy or the government.”

The CBI said it wants the Pensions Regulator to approve longer recovery plans as the best way of keeping businesses viable.

The government should amend rules that make it harder for firms with defined benefit schemes to adapt to the recession, in particular the Section 75 rules on employer debt during restructuring.

For its part, the PPF must avoid raising contributions to the pension protection fund since businesses are already paying £700 million a year, double the original estimate of £300 million.

Meanwhile investors, the CBI added, need to resist using spot valuations, and recognise that the underlying funding position of pensions schemes is strong and that deficits will be made up over time.