The Times featured an article by Jane Bradley, Pension black holes could swallow growth:
The recession may be almost over, but the nightmare effects of the market fluctuations of the past two years are only just starting for Scotland’s pension funds. It emerged this week that the public sector is to be hit by a £4 billion gap in Scottish council pensions, with some funds losing as much as a fifth of their value.
Luckily for civil servants, any shortfall in the amount needed to provide them with a guaranteed amount in their pension pots has to be made up with public money.
The private sector is unable to tackle its problems by dipping into government coffers. In the past month, telecoms giant BT has announced plans to tackle its £9 billion pensions deficit, while BAA, which owns Edinburgh, Glasgow and Aberdeen airports, made a £217.8m exceptional charge relating to its final salary pension scheme.
On a smaller scale, the Kinross-based textiles firm Dawson International is this week expected to announce a black hole in its pension scheme along with its annual results. Current pension liabilities are believed to be around £7m, but next week is likely to see that figure more than double as the valuation is reassessed.
Dawson said in a statement last month that the increase in liabilities was due to lower corporate bond yields and increased estimates of life expectancy. Many companies also believe that the pensions regulator looks at the problem from a worst-case scenario perspective, pushing pension trustees to be conservative in their estimates. Dawson’s management is in talks with the pension fund’s trustees and hopes to announce a revised recovery plan in the next few months. The problem is that Dawson’s pension scheme has 3,500 members, but only about 100 are paying in anything.
Dawson, which manufactures cashmere and knitwear and has a home furnishings arm, is looking for growth in the form of an acquisition in the US, which the company admits could be delayed by the pension fund wrangle.
In a period where expansion and investment is much needed, any further blows to company balance sheets are not welcome. But one thing is for sure: this problem is not going to go away.
Standard lift Benefiting from the downfall of company and state final salary pension schemes are those life and pensions companies that offer defined contribution policies.
One such firm is Standard Life, the market leader in the corporate pensions sector. It is due to report its results this week, with analysts forecasting a near 30% drop in operating profit on a European embedded value basis (EEV)[which includes the future income expected from current policies], to £933m.
Comparing the performance of insurance companies is tricky, with many having moved to the International Financial Reporting Standards (IFRS) measure, which recognises future profits from new business.
The Edinburgh-based Standard Life last month issued upbeat business figures for the final quarter of 2009. UK sales were up 38% in the final quarter on a year earlier, although a lower average market level meant the overall 2009 sales figure finished 10% down on the previous year.
Since his succession to the post of chief executive at the turn of the year, David Nish has embarked on a policy of accelerating the strategy put in place by Sir Sandy Crombie, his predecessor, rather than making radical changes, and he is expected to reiterate Standard Life’s focus on the UK markets.