Rising pension costs hampering business

Rising pension costs hampering business and UK growth

Rising pension costs are slowing business’s growth and holding back investment and new jobs, the Confederation of British Industry (CBI) has warned.

It is urging the Government to take action on high pension deficits – often the result of quantitative easing (QE) – and a potential hike in the cost of the Pension Protection Fund charges next year, both of which mean businesses are struggling to meet employee pension costs.

The Bank of England has injected an additional £375 billion into the economy since 2009 to kick start economic growth, although doing so can often drive down gilt yields and, amongst other factors, affect the value of pensions.

According to the CBI, rises in Pension Protection Fund (PPF) levies – the PPF delivers compensation to members of pension schemes when an employer is unable to meet the costs – will also push up costs for businesses. It said that levies could rise by up to 25 per cent next year for businesses who already contribute £36 billion to schemes.

Director general of the CBI John Cridland said: “A solvent, profitable company as sponsor is the best protection for a pension scheme and its members. Artificially high deficits will only hold businesses back further from investing and creating new jobs because of demands for higher funding from trustees.”

“We’re urging the Government to act to address this important issue by taking three steps: stop the rollercoaster deficits by smoothing the measure of the gilt yield for businesses; halt a possible 25% rise in PPF levies next March; and ensure the Pensions Regulator takes account of businesses’ ability to grow.”

Elsewhere, business groups have also voiced opinions ahead of the Bank of England’s next Monetary Policy Committee (MPC) meeting on 2 August. Most economists expect the MPC to maintain interest rates at 0.5 per cent and its QE programme at £375 billion as the last £50 billion boost in July continues to be implemented.

David Kern, chief economist of the British Chambers of Commerce (BCC) said last week’s poor GDP figures and difficulties in the Eurozone may call for more QE later in the year.

“However, higher QE will only have marginal effects on the real economy, and is not risk-free, as it will limit the fall in inflation. Lower inflation is critical to underpinning real incomes and sustaining demand in the UK economy,” he said.

Kern advised the MPC to focus on supporting the economy through increased lending via the swift implementation of the Funding for Lending Scheme – a package worth up to £100 billion to support the flow of credit to the public and businesses.

“The MPC should also reconsider its reluctance to purchase assets other than gilts, notably securitised SME loans. Such a move would make the banks less risk averse towards small- and medium-sized businesses, thus helping to remove one of the main obstacles to a sustainable UK recovery,” he added.

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