PwC: Underfunded pension schemes still a risk

By Rob Starr, Content Manager, Big4.com

According to PwC, the new economic realities of low interest rates and investment returns and high inflation mean scheme deficits are unlikely to improve without action from companies and trustees.

Jonathon Land, pensions credit advisory partner at PwC, said:

“We are no longer in a standard economic cycle. We are living in a world of low interest rates and investment returns and relatively high inflation, meaning that without action, pension scheme liabilities are likely to remain at their current high levels.

“If investment returns remain low, and company earnings do not rise in line with inflation, companies will find they are paying a greater share of those profits towards covering their pension deficit. This will only add further pressure on those companies that are already weak.”

PwC’s Pensions Support Index, which tracks the overall level of support provided to DB schemes out of a possible score of 100, now stands at 74. The Index had shown a steady improvement since the March 2009 low of 64, but since the start of the year has stabilised at 74 and shows no signs of further improvement. This is far below the 88 level achieved in early 2007.