Yorkshire firms facing £1.1bn pensions shortfall

Richard Jarvis, director in Deloitte's Total Reward and Benefits team
Richard Jarvis, director in Deloitte's Total Reward and Benefits team
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The region’s top businesses are facing a £1.1bn pensions black hole after deficits climbed £400m in the last financial year.

Research from Deloitte into the top 45 Yorkshire and North East firms found low bond and gilt yields had widened the funding gap, despite £200m being paid into funds over the year.

Deloitte warned that unless steps were taken to reduce pension liabilities, funding the deficit could hit business performance and job creation in the region in the coming years.

Richard Jarvis, director in Deloitte’s Total Reward and Benefits team, said the cost of providing final salary and other defined benefit schemes had risen due to poor market conditions, including a fall in the long-term predication for interest rates.

He said: “With businesses needing to make good the difference, the implication is that without appropriate funding plans in place, the cash injection required will directly affect their ability to invest in skills and training, research and development, job creation and other business activity.”

With market conditions unlikely to change in the short term, even financially robust businesses could find themselves in difficulty, Deloitte warned.

Mr Jarvis said: “Business owners need to ask themselves some questions.

“Are trustees’ cash demands diverting investment in the business? Might the pension scheme block or hinder your next corporate activity?”

Businesses can lessen the impact of pension deficits on their cash position through alternative security, such as using valuable assets such as plant, machinery or stock, Deloitte said.

Ultimately, businesses must reduce the cost of schemes, either by amending benefits or using options such as the pension flexibilities introduced by the Government in April, it added.

Earlier this month, research revealed pension deficits in the FTSE 350 had fallen from £93bn in May to £81bn in June, despite falling asset values.

Improvements in yields on corporate bonds drove fund values higher, the Mercer Pension Risk Survey found.