By Daniel Hunter
More than half of company pension funds have lengthened deficit recovery plans by three years or more, new survey research by PwC shows.
In its annual pension scheme funding survey covering over 200 defined benefit schemes, PwC found that larger deficits are increasingly being dealt with by extending the length of deficit repair periods. 71% of schemes have extended the length of their deficit recovery period by 3 years or more, compared to 63% in the previous survey.
The survey shows that the average target date for full funding has extended by 3 years to 2023 since the start of this decade. However, some schemes are not expecting to be fully funded until 2040.
Just under 40% of schemes have some form of non-cash security from the sponsor, the most common form being parental guarantees.
Raj Mody, Head of PwC Pensions Consulting and Skyval, said: “The survey shows that plans to repair deficits are now being pushed further down the road. This illustrates the relentless drag on pension fund sponsors and trustees trying to deal with stubborn deficits.
“At the same time, two-thirds of survey participants now set deficit repair plans with regard to the employer's own sustainable business growth plans. So recent trends may reflect the impact of a more balanced regulatory focus around how pension deficits dealt with by companies. ”
Other findings include that almost 80% of schemes already have or are considering putting a long-term derisking strategy in place. A fifth of those schemes are basing their derisking strategies on holding high quality bonds which look to generate income to match the outgoing cashflow of the pension scheme. The survey reveals a wide range of ultimate goals, with over 30% of schemes targeting buy-out with an insurance company. The Skyval Pensions Index, launched in conjunction with this year's survey and which tracks the funding status of FTSE100 companies on a daily basis, confirms the challenges that companies sponsoring pension schemes will face with financing discussions this year.
Raj Mody added: "Pension deficits continue to be volatile, varying by nearly £50 billion just across FTSE100 pension schemes since the start of 2015, according to the Skyval Pensions Index. While trustees and sponsors should endeavour to take the long view when it comes to sorting out the financing challenges of their pension schemes, the fast-moving environment can make decision-making difficult. You really need to understand the underlying economics of your specific pension scheme and how its obligations look over the long period of its potential lifetime."