Pensions contributions impacting on investment says CBI

News Article - 17 July 2006
Category: Technology

The increasing level of contributions that companies are making to defined benefit (DB) pensions schemes is having a "significant impact" on the funds available for investment and is also hitting profits, according to a CBI study.

In its survey of over 350 chief executives and senior board members, the CBI found that 17 per cent of firms reported a severe impact on profits.

That was up from two years ago, when just three per cent had reported a severe impact.

A total of 74 per cent of companies with DB schemes reported a significant or severe reduction in profits due to increased pensions costs, up from 50 per cent in the last survey two years ago.

As a result of the costs, 40 per cent of firms with DB pensions schemes have cut their investment in the business. One in five firms have also cut jobs.

"At a time when business investment is being squeezed by higher business taxes and the sky high price of energy, the added burden of spiralling pension contributions is threatening UK firms' ability to invest in future jobs and growth," said CBI deputy director-general, John Cridland.

"Government must take heed of the extra burden on companies of these massive contributions and deliver on its promises in May's Pensions White Paper to simplify rules and reduce regulatory burdens."

The biggest regulatory concern among senior executives was the Pensions Regulator's ability to intervene in corporate transactions.

"So far, it appears the Pensions Regulator has used its extensive powers, in particular the ability to intervene in merger and acquisition activity, in a careful and measured way," added Mr Crickland.

"Clearly concerns remain, however, about the potential impact of the regulator's actions. It must continue to demonstrate it is properly balancing the interests of pension scheme members and ensuring firms remain competitive."

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