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Conflicts of
interest on trustee boards could be strained even further as companies
look to reduce funding levels of pension schemes in the wake of
recent market turmoil, warns Trustee GAAPS.
Trustee GAAPS, a trustee search and selection firm, says that trustees
will need to guard against directors taking a short-term view and
cutting funding levels because, although many schemes are currently
in surplus, the risks to funding levels are growing.
The firm cites the Pension Protection Fund’s (PPF) June 7,800
Index as a reason for warning, as scheme assets are shown to have
fallen by over two per cent over the last year to £851.8bn.
At the same time, rising inflation is calculated to have added £56bn
onto company pension liabilities in the last year.
David Johnson, consulting director at Trustee GAAPS, commented:
“As the financial strength of UK companies weakens in the
downturn the temptation to cut funding for pension schemes as part
of wider cost-cutting measures will increase. The existence of surpluses
built up over the last few years in some schemes will make that
temptation even harder to resist.
“The conflicts of interest of being a trustee and a director
of a sponsoring company are hugely amplified in these difficult
financial circumstances.”
Trustee GAAPS said they are aware that trustees are already becoming
‘jittery’ about the uncertain financial position of
sponsoring companies and the potential threat to payments into schemes.
“If inflation breaks the four per cent barrier, it will heap
billions more on the liability of schemes,” Johnson added.
- Pensions Age
July 2008
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