Final salary pension deficits are reducing the competitiveness of British businesses and are making it harder for them to restructure, according to research from the Confederation of British Industry (CBI).
30% of companies think that the schemes have significantly obstructed mergers, acquisitions or in internal restructuring. Three quarters of respondents expect that the business will have to pay even more into its final salary scheme in their next funding plan, despite most schemes being shut to new members.
One in three firms felt that pensions provision had significantly obstructed internal reorganisations or mergers and acquisitions, often leading to reduced competitiveness - double the level of 2007's survey. Similarly, 38% said that business investment had been hit.
Given the wider impact of pensions costs, eight out of ten directors believe most final salary schemes will close to existing members over the next few years as a result of the current turmoil, with employees moving into DC schemes. A third are planning to take cost-saving steps within the next two years, designed to reduce the cost of schemes or close them completely.
An increasing number of firms are looking to transfer some of their final salary liabilities to an insurance company in order to reduce risks in relation to past pensions commitments. Half of scheme sponsors expect to have secured at least some pension liabilities with an insurer in 10 years' time.
Despite the pressures of the downturn, business leaders remain committed to staff pensions, with 83% saying there is a strong business case for offering them. But boards are clear that this will be a commitment that they know the cost of up front, and so DC pensions are the choice for the vast majority. This year's survey shows that average employer contributions to DC plans have remained unchanged through the recession, at 7.1%.
"The high and unpredictable cost of running final salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy," said John Cridland, CBI Deputy Director-General.
