Final salary penion schemes under pressure

Many sponsoring companies of final salary pension schemes are in a state of distress, owing to years of onerous legislation, the current regulatory regime and financial turmoil, according to Aon Consulting, a leading pensions, benefits and HR consultancy firm.

Speaking at the Managing Risk: a financial directorís perspective conference at the Yorkshire branch of the Institute of Chartered Accounts of England & Wales (ICAEW) today, Marcus Hurd, Senior Consultant & Actuary, argued that sponsors of final salary pensions schemes are struggling to survive, but that successful companies will manage their obligations in the same way as they manage other underperforming arms of their businesses.

In his speech, titled Final Salary; Managing Distress, Marcus Hurd, Senior Consultant & Actuary at Aon Consulting said: Final salary pensions have been hit by years of onerous legislation and now tight regulation and financial turmoil. These three factors have created the current environment where sponsors of final salary pension schemes are struggling in a distressed environment.

Many companies continue to underestimate the magnitude of their financial obligations to pension schemes. Rather than managing the relatively minor scheme surplus or deficit that appears on company balance sheets, the pension scheme is comparable to running a subsidiary, which in terms of its total assets and liabilities is far larger than many companies' mainstream businesses. Successful companies, however, are characterised by their ability to manage underperforming business units efficiently and effectively.

Successful companies exposed to the final salary pensions environment will manage their final salary business unit as if it were a subsidiary. They will give it the appropriate management time, use financial instruments to manage their risk exposures, manage their operations efficiently and seek opportunities to settle liabilities at a reasonable price.