David Prosser's Outlook: A pensions pinch at the worst moment possible

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The Independent Online

Hard on the heels of the credit crunch comes the pensions pinch. New figures from the Pension Protection Fund reveal an unexpectedly severe reversal in the finances of companies' final-salary pension schemes. These funds collectively had a surplus of £83bn 12 months ago and a cushion of £8bn as recently as the end of June. But by the time July was over, they were £24bn in deficit.

We shouldn't get too worked up about snapshots of pension fund finances. These schemes have such huge sums invested that even small stock market setbacks can cause seemingly enormous shifts in their funding positions. Moreover, the fact that your scheme does not have enough money to cover all pensions promised is only a problem if your employer goes bust before making good the shortfall – thankfully this is uncommon.

Still, uncommon is not the same as unheard of, which is why the Pension Protection Fund was set up in the first place. And there is no doubt this plunge into deficit is a headache for employers.

The obvious worry is that pension scheme trustees would not be doing their job properly unless they challenged companies on their plans for coping with such deficits. In many cases, employers will be asked to make additional contributions to schemes in shortfall, just as the economic slowdown leaves them feeling very uncomfortably placed to do so.

Even if trustees don't get on the employers' case, regulators will. The PPF is financed through a levy on pension schemes and employers that is, at least in part, risk-based. The more likely to leave your employees in the lurch the PPF judges you to be, the larger the contribution you have to make. And the existence of a deficit is one of the things most likely to increase a scheme's risk profile.

Global stock markets are currently so volatile that it may very well be that pension schemes have swung back into surplus by the end of this month. But these wild fluctuations are worrying in their own right. Plagued by this constant anxiety, ever more companies are likely to dump their final salary schemes altogether.

One part of the pensions sector stands to benefit, however. The growing number of firms offering bulk annuity purchase – contracts that effectively take a pension scheme's future liabilities off an employers' hands – will see their marketing pitches strengthened by these numbers. This is an industry that will grow and grow.