LONDON (Reuters) — Britain's biggest companies may have to dip into their own coffers to cover deficits in final salary-linked pensions, or consider more riskier investments besides bonds, a study found.
Accountants PricewaterhouseCoopers (PwC) said the ability of the United Kingdom's top 350 companies to support their defined benefit pension obligations — which promise staff a pension based on salary — is still far below pre-recession levels.
And the situation didn't appear to be getting any better.
PwC said its Pensions Support Index, which tracks the overall level of support provided to DB schemes out of 100, had fallen to 74 — well below the 88 level achieved in early 2007.
It said companies may have to dip into their own pockets or make payments for longer to cover deficits that have been made worse by chronically weak stock markets and low interest rates.
And it said pension trustees should reduce government bond holdings and look to higher-return investments, or insure all or part of their pension liability risks with insurers and reinsurers.
Weak economic growth has lowered returns on U.K. government bonds, a staple investment for pension funds, and increased deficits in workplace schemes.
"If investment returns remain low and company earnings do not rise in line with inflation, companies will find they are paying a greater share of those profits towards covering their pension deficit," said Jonathon Land, pensions credit advisory partner at PwC.
Recent figures from the Pension Protection Fund showed the total deficit of British final-salary pension schemes had more than doubled to 231 billion pounds in the space of one year.
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