Pension funding levels have fallen due to current economic uncertainty, meaning that the aggregate position of pension schemes has moved from a surplus of £15bn at the start of 2008, to a deficit of £23bn.
According to the Pension Risk Study by Deloitte, the the average FTSE 100 employer is estimated at putting 8% of its market value at risk through its pension scheme. In addition, Deloitte has claimed that there is a one-in-20 chance that FTSE 100 pension scheme deficits will increase by £80bn over the next year.
Typical pension scheme investment strategies currently focus on higher-risk asset classes, such as equities and property, which are volatile and mean that employers investing in these assets will have to inject high levels of funding into their pension schemes.
Some employers are taking steps to minimise these risks, such as conducting a buyout for defined benefit pension liabilities.
David Robbins, pensions partner at Deloitte, said: “The bottom line is that most companies are taking too much risk in their pension schemes. I seriously question whether this is the right economic climate for businesses to take such large gambles. Companies need to proactively work with pension scheme trustees to focus on the right strategy for their individual circumstances. There are a range of options available to manage pension liabilities and investment risk. The one thing that companies must not do is ignore it.”