The UK and US bodies that guarantee retirement benefits are forging stronger ties to stymie the growing number of transnational schemes available to employers who want to dump billions of dollars of pension liabilities on to insurance schemes. The US Pension Benefit Guaranty Corporation, and the UK’s Pension Regulator and its Pension Protection Fund have signed an agreement under which they will exchange information about how employers and pension providers manage their retirement obligations in a downturn.

David Norgrove, chairman of the UK’s Pensions Regulator said the sharing of information would allow regulators to deal with emerging risks such as “new business models which seek to transfer, avoid or abandon [pension] obligations.” The regulator and the two pension insurers have become increasingly concerned about models aimed at helping cash-strapped employers shift their liabilities to other, often less well-funded, entities. Schemes in recent years have included offers from unregulated insurers to take on liabilities at far lower cost than regulated ones and corporate restructurings that leave liabilities with subsidiaries that do not have the assets to make good on shortfalls.

Both the UK’s PPF and the US’s PBGC are government sponsored, but employer financed insurance schemes that promise to pay at least a portion of promised pension benefits if an employer becomes insolvent and leaves behind an underfunded scheme.

Soaring bankruptcies in both countries along with staggering losses in stock markets have left thousands of employers facing cash flow difficulties and schemes in worse shape than ever. The memorandum of understanding comes as a burgeoning number of private enterprises advertise their ability to help employers shed pension liabilities at low cost.

Mr Norgrove said the agreement’s goal is to set out a legal framework to make existing cooperation more systematic. He noted that current heightened risk is forcing companies and pension schemes to respond very rapidly and that regulators need to keep up with those responses to safeguard pension promises. “It is about understanding what is coming down the road,” he said. Vincent Snowbarger, acting director of the PBGC, said the agreement would help the three organisations counter threats that are increasingly global. “In today’s global business world, pension regulators often face common issues that cut across national boundaries,” he said. “This agreement gives the PNGC and our UK counterparts a framework for appropriate sharing of information and cooperation in carrying out our missions.”

The Financial Times, Wednesday 4 November, Online

The deficit at the nation’s pension insurance fund roughly doubled in the year to the end of March as a wave of insolvencies led to a rise in claims on the fund. The Pension Protection Fund, the government-sponsored, employer-financed body that insures the pension promises of insolvent companies, said that its deficit for the year to March 31 rose from £517m to £1.2bn ($857m to $1.9bn), with £1.3bn in new claims adding to the shortfall.

However, that was somewhat offset by the PPF’s hedging strategy on its investment portfolio, which saw returns of 13.4 per cent in the face of collapsing stock markets. Overall funding levels fell to 88 per cent of liabilities from 91 per cent the year before. The PPF, which published its annual report on Friday, said it was responsible for guaranteeing benefits for more than 200,000 people. Lawrence Churchill, chairman, said the recession had highlighted the need for a pension insurance scheme. “None of us would want to go back to an era where people lost their pension as well as their jobs.”

He added that the PPF had anticipated that the number of claims would be larger than the levy collected and that the outcome of the 2008-09 financial year was widely expected. During 2008-09, 24 schemes exited the assessment period. A further nine schemes were rescued and six completed the assessment period with sufficient assets to secure their liabilities outside of the PPF. The accounts include the effects of a further 290 schemes in assessment with £8.8bn of liabilities and £5.9bn of assets. Schemes in assessment are considered probable claims on the PPF that will not formally come into the insurance scheme for another two-and-a-half to four years.

The PPF also noted it had not collected all of the levy due for the 2008-09 financial year; it has £583m of the £675m to be raised. The report comes amid increasing concern among employers about the cost of pension insurance, which some say is placing a burden on their businesses, and some employers’ groups are seeking government backing for the PPF. However, there appears little support in government for such a lifeline, with several policymakers pointing the moral hazard such a lifeline might create.

Meanwhile, the report also highlights the relative stability of the fund, even under several adverse economic scenarios. Under the PPF’s “median base economic scenario”, keeping the annual level constant with wage inflation, the PPF will be able to return to break-even by the 2013-14 financial year. Even under a “double dip” recession, the PPF would return to break even by 2018-19 without raising premiums in real terms.

The Financial Times, Thursday 5 November, Online

Trinity Mirror has announced plans to close its final-salary pension scheme to existing members, as large UK employers including Barclays, Whitbread and IBM consider similar moves. The publisher of the Daily Mirror and many regional newspapers informed staff over the weekend that it was beginning a two-month consultation on the proposals.

Trinity’s pension deficit has skyrocketed from £37m in 2001 to £275m in June this year, in spite of additional contributions of £259m by the company in the intervening period. It said the closure was the only way to remove an “open-ended, uncapped liability” without threatening contributions already made to the schemes. Trinity has already closed 27 titles and cut 1,200 staff in the past year as it grapples with tumbling advertising revenues. About 3,000 of Trinity’s remaining 7,000 staff pay into its defined benefit pension scheme. A further 23,200 former staff and their dependants continue to claim benefits.

“The cost of final salary pension provision continues to increase and the group can no longer afford to provide these benefits,” Trinity said in a statement. “Closing these schemes to future accrual would help limit the increase in liabilities in the defined benefit pension schemes and help the Group to fulfil its commitment to eliminate the current deficit.” Current contributors will be able to join the company’s defined contribution scheme instead. Annual savings of about £9m will be reinvested into funding the deficit, it said.

The National Union of Journalists condemned the move as “the latest in a long line of attacks on staff at Trinity Mirror”. According to some estimates, half of all companies whose defined benefit pension schemes are still open could have closed them by 2012. Newspaper publishers have been among the hardest hit in the media sector by the fall in advertising spending. Group M, WPP’s media agency, forecasts a 26 per cent decline in newspaper advertising revenues in the UK this year, following a 15 per cent reduction last year. Trinity is due to update shareholders on its third-quarter performance on Thursday. Analysts at Citigroup forecast Trinity to report advertising revenues down 12 per cent on 2008 for the year to October on national papers, with regional advertising 30.5 per cent lower, and net debt of about £370m.

The Financial Times, Sunday 8 November, Online

People claiming their pension from next April will no longer be able to choose to receive it in advance = A state retirement pension is usually paid four weeks in arrears but individuals can choose to have it paid weekly in advance. This choice will be lost as part of major pension rules changes from 6 April 2010. The Department for Work and Pensions said the new system would save £10m a year by 2020.

Savings from arrears = A DWP spokesman stressed this was not primarily a money saving measure but said: "Paying in arrears will reduce the amount of money that [the Department] overpays and has difficulties recovering when a customer dies." Pensions minister Angela Eagle told Parliament: "Existing recipients of state pension and pension credit will continue to have a choice about how frequently they are paid." The spokesman confirmed this would mean that people over state pension age on 6 April who were being paid in arrears would still be able to switch to weekly advance payments if they wanted to in the future.

Pay day change = New pensioners will lose the choice but will be able to choose weekly, fortnightly or four-weekly payments in arrears. That means they will get their pension - and the annual increase in it - at least two weeks later than those who have their pension paid a week in advance. As well as scrapping payment weekly in advance the government will change the day on which the state pension is paid. At the moment most pensions are paid on a Monday with some being paid on a Thursday or Tuesday.

Wider changes = From April each new pensioner will be allocated a pay day from Monday to Friday depending on the last two digits of their National Insurance number. People moving from working age benefits to a pension will either keep the same pay day or receive a part week's payment to cover the gap. At the moment pensioners can be left without benefit for several days. Similar changes to move payments in advance to arrears and to relate paydays to National Insurance numbers were introduced in April 2009 for single parents and those on Jobseeker's Allowance and other benefits.

BBC Online, Sunday 8 November, Online

Proposed rules on how employers should enrol their workforce automatically to a pension scheme in 2012 remain bureaucratic, inflexible and in some parts unworkable, the National Association of Pension Funds warned.

The NAPF said leaving the rules unchanged increased the risk of employers with good pension schemes closing them down, and enrolling employees instead in the less generous new system of personal pension accounts. The regulations "seem to have been drawn up on the assumption that large numbers of employers may wish to avoid their legal duties," said Nigel Peaple, NAPF director of policy. "The government should start from the assumption that the vast majority of employers who already offer a good pension will do their utmost to comply with the new requirements."

The Financial Times, Monday 9 November, Online

Nearly a quarter of UK businesses predict that their staff will be working beyond the national retirement age within the next decade, as they cannot afford to retire earlier. Around 1.8m people will be working beyond the state retirement age in ten years’ time, up from 750,000 today, according to a survey of over 500 finance directors by Prudential, the UK insurer.

The trend will be more marked at larger companies where nearly two-fifths of finance directors said they were expecting their staff to request to work past retirement age. Companies are expected to see an increase in costs as a result, as an older workforce makes it more likely they will have to spend more on benefits, such as death-in-service payouts and medical insurance bills. In the past year, seven per cent of finance directors have reported an increase in the number of employees requesting to work past retirement age, the study found.

Sharp falls in the value of people’s pensions has led to many workers delaying retirement or working part-time during the economic downturn. “Workers face the stark choice of either having to save more for their pension from an earlier age or having to work longer if they are to avoid taking a significant drop in their standard of living in retirement,” said Martyn Bogira, Prudential’s director of defined contribution solutions.

Workers in the north are expected to be harder hit. Employers in the north, north-west and Yorkshire and Humberside expect over 16 per cent of their staff to be working beyond retirement age by 2019, while in London and the south-east the figure was just 2.4 per cent. Prudential said this was likely to reflect differing average salaries in the regions, as those with higher average earnings can afford to retire earlier.

The Financial Times, Monday 9 November, Online

Small businesses will be saddled with extra costs and red tape because of new workplace pension rules, the UK’s main accountancy body has warned. Major pension reforms are due to be introduced in 2012, under the Pensions Act 2008. The Department of Work and Pensions this month completed its third consultation on the changes.

The Association of Chartered Certified Accountants (Acca) is concerned that small businesses in particular will face substantial extra burdens from the proposals. John Davies, head of business law at Acca, said there was a danger that employers would downgrade the quality of pension schemes because the proposals would allow them to change their practices to the minimum allowed by the law. The government estimates that 5m-9m people will join or save more in workplace pension schemes as a result of the reforms.

The Financial Times, Friday 13 November, Online

Pensioners are being encouraged to claim their share of £200m of overpaid tax on savings interest in a “TaxBack” campaign by HM Revenue & Customs (HMRC). In some cases, individual repayments could be worth thousands of pounds and claims can be made for as far back as the 2003-4 tax year.

HMRC is writing to more than 3m recipients of the Pension Credit top-up benefit, advising them to complete a repayment helpsheet to check if they have overpaid tax. But better-off pensioners could also be eligible for refunds. Claims for repayment are made via HMRC’s R40 form, which is available at www.hmrc.gov.uk/taxback.

Sarah McCarthy-Fry, exchequer secretary to the Treasury, said: “We know times are tough for many pensioners, and we don’t want anyone paying tax they don’t need to.” The overpayment arises because banks and building societies generally deduct basic rate tax at 20 per cent from interest before paying it to savers.

Individuals whose total taxable income is less than their personal allowance – £9,490 for 65-74-year-olds this tax year – can receive their interest gross by filling in R85 forms for their accounts. However, many thousands of older people and low-income savers who are eligible to receive gross interest fail to register. Also, registering for gross interest isn’t an option for individuals whose income exceeds their personal allowance: they suffer the 20 per cent reduction on all their interest, and have to reclaim any overpaid tax.

Older people who are non-taxpayers or who qualify for the 10 per cent savings rate – which can be worth more than £200 a year to lower-income pensioners – will be due a repayment if they have taxed savings, said HMRC. Non-working spouses and children with low incomes could also be entitled to rebates. John Whiting of the Chartered Institute of Taxation said rebate claims can currently go back up to six years, but this claim period is due to be reduced from next April. The latest date for claiming for the 2003-4 tax year is January 31 2010. HMRC doesn’t pay interest on this overpaid tax.

Europe’s 430 largest listed companies are underestimating their collective pension deficits by €300bn (£267bn, $446bn), according to analysis by AlphaValue, an equity research house. As of 2008, the companies acknowledged a combined deficit of €1,550bn. However, AlphaValue claimed these figures were artificially low because companies had underestimated the projected rate of future salary increases, which on average was reduced from 3.7 to 3.6 per cent last year.

It said businesses were overestimating the “discount rate”, used to convert the value of future obligations into current prices. The average discount rate rose to 5.57 per cent in 2008, from 5.38 per cent in 2007 and 4.9 per cent in 2006. AlphaValue claimed the true funded pension obligation at Lloyds Banking Group was €32.6bn, rather than the €18.4bn recorded by Lloyds last year, while Royal Bank of Scotland’s was €46bn, rather than €32.7bn. It put the deficit for British Airways, whose pension scheme is crucial to a proposed merger with Iberia, at €25.6bn, not €15.1bn.

The Financial Times, Sunday 15 November, Online

The total value of defined contribution pension value fell by £18bn in one month, according to Aon Consulting. The pension consultant said the total figure stood at £489bn at the end of October, compared to £507bn at the end of September. The fall reflects a bad month for stock markets around the world as they fell back following a period of strong gains. Aon said this is the biggest fall since February, but also noted earlier in the month combined DC pension assets reached a 16-month high of £520bn - a level not seen since June 2008.

Highlighting the current uncertainty being faced by UK workers as a result of equity market volatility, Aon said a 65-year-old retiring on October 31 would have received an annual retirement income of £8593. If the same worker had retired six months earlier on April 30 they would have only received £7133. This is the equivalent of over £120 every month, or £29,200 over the course of 20 years. Richard Strachen, senior consultant at Aon Consulting, said: ”While October finished slightly down compared to September, the general trend for the UK’s DC pension savings is on the up. “There is still significant volatility, though, and it is vital for workers to take an active interest in their retirement savings, evaluating whether they are invested in the right funds for them, and to have some very clear goals and a strategy to achieve them.”

According to separate research from Aon, British workers are increasingly investing their DC pensions in their scheme’s default fund, potentially as a result of the continued uncertainty in investment markets. The 2009 Aon Benefits and Trends Survey revealed that majority of employers are seeing more than 80 per cent of their employees invested in the default fund. “There is a trend towards increasing the number of investment options,” said Strachen. “However, too much choice will often lead employees to select the default option through fear or inertia. It’s understandable that members are seeing the default fund as a safe haven. However the security of the default fund is down to those managing the scheme.”

The Financial Times, Monday 16 November, Online

Pension trustees, usually a low-profile part of corporate life, have been unwillingly thrust into the limelight in the past week. Two large transactions have been unveiled that place them – and by extension, the Pensions Regulator – at the heart of deals that are aimed at helping struggling companies survive the recession and expand.

The two involve high-profile UK companies; British Airways, which announced a merger with Iberia, and Cable and Wireless, which confirmed long-awaited plans to split itself into two companies. In each instance, questions remain over which assets – cash flows and profits – are available to repair the huge deficits that schemes of both employers now carry.

In each case, failure by trustees of the schemes to strike a deal with the company, which then must in effect be approved by the Regulator, could doom the proposed transaction. Officially, the Regulator does not need to approve any deal unless either the company or trustees seek “clearance”. But the Regulator does have to approve what are known as scheme specific funding arrangements that ensure deficits are repaired in a reasonable time period. Iberia has made clear it does not want to see BA increase contributions much beyond current levels, while C&W’s demerger raises issues of cash constraints.

It is a position, pension experts say, that the Regulator has sought to avoid since it was created nearly five years ago, and one that is of increasing concern to trustees. “My experience has been that the Regulator does not want to determine whether deals fail or succeed,” said Ian Pittaway, senior partner at Sackers, a law firm specialising in pensions.

The Financial Times, Friday 20 November, Online

Pension trustees are scrambling to meet unprecedented volatility in their assets and liabilities as market changes challenge the governance structure of many schemes, a survey due to be released on Monday by Hewitt Associates will say. The survey, which looked at 114 employers – mostly in the UK and US – found that four out of five schemes surveyed expect to have to increase contributions to their pension funds after the next actuarial valuation. Two-thirds say that the additional financing will be manageable.

Kevin Wesbroom, principal at Hewitt, said that although the study had found some evidence that schemes were moving to reduce investment risk, it was surprising that so few had done so. “There could well be a strong element of regret risk...perhaps trustees would have wished to implement these products or strategies 18 months ago, when markets and funding levels were significantly higher,” the report says.

But Mr Wesbroom said recent market movements had been so savage that many companies that would like to put low-risk investment strategies in place cannot due to big losses. “They can’t afford to do it,” he said. “They have to keep rolling the dice.” The study found implicit acknowledgement that amateur trustees may not be best placed to cope with sophisticated investment strategies. Many schemes are considering fully or partially delegating the investment process to a third party while many are also looking to trim benefits.

The Financial Times, Sunday 22 November, Online

The Pensions Regulator is to launch a new effort aimed at improving the governance of company retirement schemes. That comes amid a wave of corporate restructurings that are challenging trustees’ ability and willingness to engage in tough discussions with employers.

Following moves in recent weeks by British Airways and Cable and Wireless involving corporate restructurings that depend on agreement with scheme trustees, the governance and the ability of trustees to handle conflicts has been thrown into the spotlight. The regulator has unveiled results of its annual survey of Trustee Governance, which found clear signs that standards had been raised across the board, particularly at larger, defined benefit schemes.

Of those surveyed, 60 per cent say they are confident they have procedures in place to identify potential conflicts of interest, up from 35 per cent in 2006. The survey found that economic uncertainty has had an impact on scheme governance, with a significant increase in those with a subcommittee with the responsibility for reviewing the employer’s covenant. The regulator has made clear that trustees at schemes sponsored by companies with weak balance sheets need to be even more conservative in setting plans for filling shortfalls and in investment strategy.

The survey also found that larger schemes tended to be associated with higher levels of governance activity, with a fall noted among schemes sponsored by small- and mid-sized companies in regular reviews of the employer’s covenant. The regulator made it plain that the governance concerns went well beyond conflicts of interest; in particular, it wants to improve internal controls. Its survey of trustees found that fewer than half of schemes were confident they had sufficient internal controls to mitigate risks from inappropriate investment strategies or administrative error. Also, it noted that relatively few trustees had a sufficient understanding of the regulator’s so-called clearance procedure, through which trustees, employers and advisers can reassure themselves that they will not be held personally liable for losses should an employer later become insolvent leading to losses for scheme members.

It also said that its efforts to improve governance were not limited to trustees. “All those involved in pension schemes must bring examples of poor governance to our attention,” the regulator said. “There is a statutory requirement to whistleblow breaches of the law.”

The Financial Times, Tuesday 24 November, Online

The rush to close final salary pension schemes has resumed in the wake of the financial crisis and the recession, and the government is running out of time if it wants to help rescue those left, the National Association of Pension Funds warned on Thursday. There were also “worrying signs” that significant numbers of employers would use the introduction of new low-cost personal pension accounts, due in 2012, as an opportunity to reduce the amount they put into employees’ pensions.

The warnings followed the association’s annual survey of members. The figures show just 23 per cent of defined-benefit pensions remain open to new members, down 5 percentage points in a year. Some 38 per cent of those expect to close to new members. Of the schemes that still allow contributions from existing members, 30 per cent plan to stop and switch employees into money purchase pensions.The only silver lining in the survey of 300 schemes is that employers maintained their level of contribution to money purchase, or defined-contribution, pensions over the last year.

The overall results “paint a depressing picture”, Joanne Segars, NAPF chief executive, said. They show the government “can no longer sit on its hands” if it wants to preserve pension saving, she said. The prognosis is underlined by evidence that significant numbers of employers may “level down” their pension provision by switching employees into the low-cost personal pension accounts, into which employers will only have to put a minimum 3 per cent of pay, after 2012. Just 41 per cent of those surveyed said they would automatically enrol employees into their existing schemes – into which employers typically put at least twice as much – from 2012. Some 8 per cent said they planned to reduce their overall contributions from 2012. Another 10 per cent would use personal accounts where employees did not actively choose to join the existing scheme. Some 13 per cent planned other changes to reduce the cost, and a quarter were unsure what course of action they would take.

“Those figures should really worry the government,” Ms Segars said. “The risk that there will be a significant levelling down cannot be discounted.” To combat that, the process for automatic enrolment must be made far simpler than under current proposals, she said. To help preserve what remained of final-salary schemes, the best course of action for the government would be to issue more long-dated, indexed-link gilts. That would help schemes reduce and match their liabilities better while providing a cheap source of capital for the government, Ms Segars said. She said that 82 per cent of schemes in the survey said this was the best way for the government to help them. The next most popular option, supported by 79 per cent, would give pension schemes more discretion over whether to increase pensions in payment in line with inflation, she said.

The Financial Times, Friday 27 November, Online

Pension scheme deficits have got so large they are unlikely to recover without drastic action from companies, it has been warned. The UK's 200 biggest defined benefit pension schemes faced a funding shortfall of £88 billion at the end of November, up from one of £78 billion at the end of October, according to Aon Consulting.

The group said it would take investment returns of 11% a year or annual additional company contributions of £15 billion if the funding blackhole was to be reduced to zero during the next seven years. But it said while the deficits were likely to be reduced through a combination of these factors, many companies were also expected to look at ways of cutting members' benefits in order to manage the shortfalls. The group said common options that firms were likely to consider included closing the schemes to all members, so that no more benefits accrue, or changing the schemes so that they offer lower pensions.

Aon said the outlook for defined benefit schemes, including final salary pensions, was even bleaker when other factors were considered, including a new requirement by the Pensions Regulator for greater scheme funding, which has pushed up contribution requirements for companies. Marcus Hurd, head of corporate solutions at Aon Consulting, said: "As things stand, the inescapable reality is that pension deficits are here to stay until the final salary scheme is passed across to an insurance company and employers will have to think carefully about how to handle the situation. "There is no quick fix imminent in financial markets and the size of the challenge for UK companies is immense. "There is no easy way of clearing a pension scheme deficit and as employers wake up to the reality of their pension promises, we would expect to see more and more companies shying away from defined benefit schemes and looking to the lower risk defined contribution options instead."

Recent research from the National Association of Pension Funds showed only 23% of defined benefit schemes are still open to new members and nearly a third of the schemes which have closed to new members plan to shut to existing ones as well during the coming five years.

The Press Association, Thursday 3rd December, Online

Big shortfalls in final-salary pension schemes are making it harder for companies to adjust in the recession, according to research. The CBI/Watson Wyatt survey, which covered 194 companies employing more than 1m workers, found that 83 per cent of those surveyed believed that there were good reasons for offering pension benefits.

Some 75 per cent believed that they helped companies recruit and retain staff and 59 per cent thought they enhanced the company’s reputation. When it comes to defined contribution benefits – in which a percentage of pay is set aside in an investment account – the survey found that employers made no effort to cut benefits at all in the recession and the average contribution rate in 2009 was level with that of 2007 at 7.1 per cent.

However, employers reported that the open-ended promise of defined benefit schemes, in which benefits are calculated as a percentage of salary at the time of retirement for the remainder of the worker’s life, were damaging companies’ ability to respond to the recession. Of those surveyed, 33 per cent said pension costs were having a severe or significant effect on internal reorganisations, merger and acquisition activity, and sales of assets that would normally be undertaken to improve business prospects. In the 2007 survey, 17 per cent said that was the case.

However, the survey found that in some areas pension provision was no more burdensome than before the recession. For example, only slightly more said pension costs constrained profits: 56 per cent in 2009 against 54 per cent in 2007. And the number reporting that pension costs were a constraint on hiring was about the same as the pre-recession level. The CBI has been trying to roll back a clause of pension law – Section 75 – that prevents employers from closing a subsidiary that has a shortfall in its pension scheme without making good on that shortfall. The rule was enacted to prevent companies from undertaking a reorganisation that shifted pension liabilities to corporate entities that could never make good on the debt. Although the Department for Work and Pensions has proposed modifications, the CBI has said these do not go far enough. John Cridland, CBI deputy director-general, said the “high and unpredictable cost of running final-salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy”. “The current regulation of final-salary schemes is obstructing business reorganisation, often without making those pensions any safer,” he added.

The Financial Times, Monday 7 December, Online

Final salary pension deficits are making it harder for companies to prepare for an economic recovery, experts have warned. In a joint survey released today, the CBI and consultancy Watson Wyatt said defined benefit schemes are hitting UK competitiveness as deficits continue to grow during the recession. These have risen to £88bn over the past month, according to recent figures from Aon, which measured the UK's 200 largest private schemes.

John Cridland, CBI deputy director-general, said: "Businesses are not stepping back from helping their workforce plan for retirement. Even during this tough recession firms recognise the importance of offering their staff a good pension. "However, the high and unpredictable cost of running final salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy. This survey clearly shows that more and more companies are making changes to these legacy schemes."

The CBI believes that the Government should now reform "poorly-drafted pensions law", including the Section 75 rules, which can force companies to make top-up payments to their pension schemes when they restructure. The organisation also reiterated its call for the pensions regulator to give companies "extra breathing space" by investigating funding plans where deficit repayments will take more than 15 years to fill, rather than the current 10. More than three-quarters of the businesses asked in the Pensions Survey said they expected to pay even more into their final salary scheme over the next year – despite most schemes being closed to new members. One in three companies added that pensions provision had significantly obstructed internal reorganisations or mergers and acquisitions.

The survey revealed that an increasing number of companies are also looking to transfer some of their final salary liabilities to an insurance company in order to reduce the burden on their balance sheets. Almost half of those asked expect to have secured at least some pension liabilities with an insurer in 10 years' time. John Ball, head of defined benefit pensions consulting at Watson Wyatt, said: "Invoices for higher pension deficits will start to arrive next year as the first companies complete their funding negotiations. "Three-quarters of employers think they will have to pay higher contributions immediately, but that's not the end of the story. "Trustees and the regulator will want deficits cleared more quickly if profits return, so this increase in contributions may not be the last. "To avoid future surprises, more companies are looking for exit strategies. Companies facing drawn-out end-games may look at how to remove pension risks more affordably."

The Telegraph, Monday 7 December, Online

Thousands of private-sector employees who have been paying into final-salary pension schemes are likely to be forced on to defined contribution plans, a report from the Confederation of British Industry (CBI) warns today. Eight out of ten company directors admitted to the CBI that final-salary schemes are likely to be closed to existing members over the next few years as burgeoning deficits hinder competitiveness.

The report, produced with Watson Wyatt, says many firms are unable to restructure and prepare for an economic recovery due to concerns over their widening pension deficits. Although most private-sector final-salary pension schemes were closed to new members earlier this decade, a rising number of companies are seeking to change terms for existing members. Last week, Lloyds Banking Group unveiled plans to cap the level of pay increases that can be counted towards final-salary pensions to 2 per cent or the rate of inflation, depending on which is the lowest figure.

According to the CBI, 73 per cent of UK businesses fear they will have to increase payments to fund final-salary schemes even though most are now shut. John Cridland, deputy-general of the CBI, said firms are not shying away from obligations towards pension schemes, but they need to ensure they are in a fit state to take advantage of the recovery.

He added: "The high and unpredictable cost of running final-salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy. This survey clearly shows that more and more companies are making changes to these legacy schemes.

The Scotsman, Monday 7 December, Online

The end of generous final salary pension schemes moved a step closer after figures suggested almost 80 per cent of company directors expect the schemes to close to existing members as a result of the recession. Cash-strapped companies are increasingly closing the schemes – which pay out an annual pension based on members’ final salary – in a bid to cut costs amid the recession. Instead, they are offering defined contribution pensions schemes, which are based on the performance of the stock market. These schemes are increasingly popular because they tend to be cheaper and less risky, according to the findings by CBI and pensions consultancy Watson Wyatt. The figures also disclosed one in three firms said the cost of providing their pensions had “significantly obstructed” internal reorganisations or mergers and acquisitions, often leading to reduced competitiveness - double the level of two years ago.

John Cridland, CBI Deputy Director-General, said: “The high and unpredictable cost of running final salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy. This survey clearly shows that more and more companies are making changes to these legacy schemes. “The current regulation of final salary schemes is obstructing business reorganisation, often without making those pensions any safer. During a recession it is vital that firms are able to restructure and realign to strengthen the business and prepare for future growth.” The Office for National Statistics showed 100,000 private sector final salary schemes closed last year, leaving numbers at a record low of 2.6 million. But experts warned more workers are expected to lose out as the figures were calculated before the sharp increase in the number of companies announcing this year that they are looking to close their schemes to new and existing members.

The Telegraph, Monday 7 December, Online

Eight out of 10 defined benefit pension schemes still face a shortfall despite an improvement in their funding position during November, figures have shown. Around 79% of defined benefit schemes, including final salary pensions, had a deficit at the end of the month, according to pensions safety net the Pension Protection Fund (PPF).

These schemes collectively faced a funding blackhole of £132.9 billion, although this was an improvement on the shortfall of £135.1 billion at the end of October. Once pension schemes with a surplus were included in the figures, the nearly 7,400 defined benefit schemes that belong to the PPF were collectively £92.5 billion in the red, compared with a £97.6 billion deficit at the end of October. Pension schemes benefited from a 2.2% rise in the value of their assets during November, although some of this was offset by a 1.5% increase in the value of their liabilities.

The funding position of schemes is considerably better than it was a year ago, when they faced a collective deficit of £123.9 billion. But although pensions have enjoyed a 15.2% increase in the value of their assets during the past year, much of the improvement is due to a new accounting regime, which was introduced last month. The majority of companies have now closed their final salary pension schemes to new members in the face of the increased cost of offering the schemes. There is also a growing trend for firms to close them to existing members as well, with people instead offered less generous defined contribution schemes under which the individual shoulders the risk of investment volatility and increased life expectancy, or hybrid schemes under which the risk is shared.

The Press Association, Wednesday 9 December, Online

Savers have lost faith in insurance companies due to high charges and a long history of poor investment performance, according to experts. The damning verdict — delivered by Robert Reid, a leading financial adviser and former president of the Personal Finance Society — comes on the back of a £6.7 billion drop in sales of pensions, insurance and investments. The gloomy figures, published by the Association of British Insurers (ABI) earlier this week, compared sales by its members for the three months to the end of September with the same period last year.

Lump sum payments into pensions and other insurance company savings schemes, such as investment bonds, endowments and Isas, dropped by 41 per cent from £15.9 billion last summer to £9.4billion this year. The amount of new money going into personal pensions alone has dropped by almost a quarter, from £5.2 billion to £3.91 billion. The ABI blames the economic downturn, arguing that cash-strapped savers are focusing on repaying debts rather than saving for their retirement. But the slump in sales by insurance firms is in stark contrast to the record sales of £21.1billion announced by rival trade body the Investment Management Association (IMA), which monitors sales of unit trust Isas.

The Mail Online, Wednesday 9 December, Online

Experts have criticised fresh changes to the pension system for adding a greater burden to employers running schemes. Chancellor Alistair Darling announced moves to prevent people with incomes of over £130,000 putting huge sums into their pension funds to gain tax relief.

There are varying conclusions about how many people will be affected. But many commentators said that the added complication would accelerate the number of workplace schemes being shut.

Tax plans In his Budget in April, Mr Darling said that the government intended to restrict tax relief on pension savings for those earning more than £150,000. The changes are planned for April 2011, so he also brought in rules - known as anti-forestalling measures - to prevent people putting lots of their earnings into their pension pot in the meantime. But now the floor for the restriction of tax relief has shifted to £130,000 if they change their normal pattern of pension contributions.

This could have a particular effect on company owners who were planning to pay themselves between £130,000 and £150,000 this year in light of the Budget announcement, or companies having to administer in-house pension schemes. Martin Bird, principal consultant at Hewitt Associates, estimated that an additional 70,000 individuals would be affected, and it would add significant complication to an already complex system. "The government is introducing more obligations on employers, scheme administrators and trustees, all of which will add to the costs of running schemes. Once again, pensions simplification is right out of the window," he said.

The BBC Online, Wednesday 9 December, Online

Workers paid more money into their pension schemes in 2008 than their employers, reversing a trend that began in 2001, official data show. The Office for National Statistics on Wednesday released two chapters of its Pension Trends report, showing that while employers’ contributions to their pension schemes more than doubled from £21.8bn in 2001 to £46.1bn in 2006, that level fell to £40.6bn in 2008 as the recession began to bite. The ONS noted that while employer contributions to schemes declined in 2007 from their level the year before, that drop most likely reflected the fact that more schemes were moving into surplus, thanks to strong equities markets and rising interest rates. “The reason for the decline in special contributions in 2008 was probably increased pressure on employers’ finances in the context of recession,” the ONS concluded.

The data show, however, that between 1987 and 2001, employees’ contributions to schemes wildly outstripped that of the companies that sponsored them. The report also sketched out the impact of tax relief for pension schemes on the national accounts, with the net cost of relief – tax relief on both contributions and on investment gains minus tax collected on pension payments – totalled £19.0bn in 2007/08, just over twice what it cost at the start of the decade. But the ONS estimated that net tax relief fell back to a cost of £18.5bn in 2008/09.

The Pensions crisis FT multimedia feature: The dilemmas faced by individual savers, companies and governments and offers potential solutions to the pensions time bomb. The ONS said its calculations also did not take account of the 25 per cent lump sum payment that individuals were allowed to withdraw from their pensions at retirement, which would raise the cost of tax relief by a further £2.5bn in 2008/09.

Tax relief on contributions alone fell back in 2008/09 to £21.3bn, probably a reflection of unemployment, from £23.3bn in 2007/08. The report also outlined liabilities of the UK’s main unfunded public service pension schemes covering workers in the National Health Service, the teachers’ scheme, the armed forces and in civil service. Between 2006 and 2008, liabilities in the civil service scheme grew by roughly 20 per cent to £119.4bn while NHS pensions in England and Wales alone grew by nearly a third, from £165.4bn to £212.5bn.

The Financial Times, Wednesday 9 December, Online

Alistair Darling will say in his pre-Budget report how the Government will protect priority services while halving the public finance deficit in four years. Alistair Darling is to delay a flagship scheme to allow 11 million workers to have personal pensions as he announces spending cuts to protect budgets for schools, hospitals and the police.

In today's pre-Budget report, the Chancellor will postpone the plan for "personal pension accounts" aimed at ensuring low-paid workers not in a company scheme have an income in retirement on top of the basic state pension. Under the proposal, employers would be forced to contribute to the personal accounts. They were recommended by an inquiry into pensions chaired by Lord Turner of Ecchinswell, and the Government promised to introduce them in 2012. The delay, initially for one year, will save the Treasury between £1bn and £2bn in tax relief on the pension contributions.

The move will be one of the "tough choices" spelled out by Mr Darling as he explains how the Government will safeguard "priority" frontline services while halving the £180bn deficit in public finances in four years. He will say that it would be wrong to start cutting in 2010-11 because the world economic outlook is so uncertain. So the squeeze in "non-priority" departments will bite in 2011-12. The Chancellor will argue that government spending must be maintained next year to ensure the expected economic recovery does not fizzle out. The fragile state of the economy is underlined by a ComRes survey of 204 business leaders for The Independent.

The Independant, Wednesday 9 December, Online