Trustees of pension funds must remain alert as a sharp increase in the number of corporate insolvencies highlights the needs for them to assess their companies' ability to meet their pension commitments, says Watson Wyatt.

The financial consultant has looked at figures published by the Insolvency Service, which reveal that 4,607 companies were liquidated in quarter four of 2008, and said trustees must accept that this could be a problem for them to deal with.

"Casualties from the recession are mounting and the wave of insolvencies predicted for 2009 will almost certainly include defined benefit scheme sponsors," said Sean Weaver, a senior consultant at Watson Wyatt. "When the number of company failures first started to rise, it appeared that newer companies and smaller companies were most affected, and these are less likely to have defined benefit pensions. Since then, however, we've seen some high profile schemes head towards the Pension Protection Fund.

"Trustees cannot afford to think of insolvency as something that only happens to other people's employers," he added.

Weaver urged trustees to also remain alert over the process they take in these situations. "They need to be especially alert where the sponsor is highly geared - particularly if it needs to refinance its debts soon or is in danger of breaching bank lending agreements."

- Pensions Age February 2009

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