A study from accountants KPMG has questioned the severity of the UK's company pension crisis with the news that half of the companies in the FTSE 100 are theoretically able to pay off the whole of their deficits within one year.
Based on a comparative analysis of FTSE100 company deficits against surplus cash flow estimates, the research also shows that 70% of the firms surveyed could plug their pension gaps within three years. KPMG emphasizes in its report that the real challenge for many UK companies is not deciding if they can pay off the deficit, but how and when to do it without stifling growth.
Simon Collins, CEO of KPMG’s corporate finance practice, said: UK companies need to take back control of the pensions issue. Trustees have onerous new responsibilities and are rightly keen to ensure that pensions deficits are high on the board’s agenda. But this is sometimes confused with pressing the panic button and immediately paying down deficits, which is often neither workable nor desirable in practice.
The report also warns that there is no one size fits all solution, as the problem is aggravated in some sectors by heavy regulation. The utilities sector faces demands both from the sector watchdog prohibiting price rises and the pensions regulator encouraging the repayment of funds.
Alastair McLeish, head of pensions at KPMG, said: The pensions funding issue cannot be treated as a stand alone problem. Strategy on funding, tax and pensions needs to be overlaid with other considerations such as capital expenditure and acquisition strategy.