By Claire West

The CBI today called on the Government to prevent soaring pension costs harming businesses’ ability to invest and create jobs. It urged action to address both artificially high deficit figures, driven by low gilt yields, and a potentially significant hike in the cost of the Pension Protection Fund (PPF) to businesses.

The Bank of England’s necessary Quantitative Easing (QE) programme and the relative attraction of UK Government debt over that of some Eurozone countries have driven down gilt yields. As gilt yields are used in valuing the likely cost of future pensions, this has pushed deficits up, even though there has been absolutely no change in the underlying funding position.

At the same time, companies’ PPF levies could rise by up to 25% next year. This would be a potential “double whammy” for businesses running defined benefit pensions, who already contribute £36bn a year to these schemes.

John Cridland, CBI Director-General, said:

“A solvent, profitable company as sponsor is the best protection for a pension scheme and its members. Artificially high deficits will only hold businesses back further from investing and creating new jobs because of demands for higher funding from trustees.

“A move of the gilt yield by just 0.4%, can add up to £100bn in costs to business, despite nothing about the scheme or the employer having changed. This makes no sense — pension schemes have liabilities that run for a century or more and can afford to be more long-term.

“We’re urging the Government to act to address this important issue by taking three steps: stop the rollercoaster deficits by smoothing the measure of the gilt yield for businesses; halt a possible 25% rise in PPF levies next March; and ensure the Pensions Regulator takes account of businesses’ ability to grow.”