Employers risk paying too much into pension schemes, reveals Aon research

Employers are in danger of contributing too much into pension schemes and creating future disputes with scheme members over the application of surpluses. This is according to new research from Aon Consulting, a leading pension, benefits and HR consulting firm, which forecasts today that the largest 200 UK pension schemes are likely to show an aggregate surplus in 2010, rather than a deficit.

According to Aon, the latest combined FRS17 deficit across the 200 largest pension schemes in the UK was 26bn at the end of March, while the figure for the FTSE100 was 19bn. However, projecting this forward shows that there is a 61% chance that UK pension schemes will have a combined surplus within only three years, and an 84% chance of a combined surplus within 10 years.

Paul McGlone, head of employer advice at Aon Consulting, said: ìThis is great news for pension scheme sponsors in the UK, as it shows that deficits are once again expected to resolve themselves without the need for additional action. However, companies need to consider more innovative ways than cash contributions for funding pension schemes.î

McGlone continued: ìThe likelihood of future surplus for each employer is very different and is dependent not just on the current deficit, but on the investment and contribution strategy being pursued. A new problem starting to emerge in practice is that of an unrecognisable accounting surplus*. With an estimated 80% of UK pension schemes now closed to new members, and up to 15% closed to future accrual, the opportunity to recover surplus can be limited. As schemes mature, trustees may target a higher level of funding than is really required and many organisations could find themselves in a situation where they have paid pension contributions that were actually unnecessary, but they cannot recover or recognise them.

ìWhile employers and trustees have spent a lot of energy in recent years dealing with downside risk, the upside risk cannot be forgotten. Employers need to take a more complete view of pensions risk management.î