‘Zombie firms’ leaving trustees ‘with no way out’

Around one fifth of ‘zombie firms’ have a defined benefit pension scheme which may leave trustees “with no way out”, according to KPMG.

The analysis found that firms facing sustained financial pressure, and which limit domestic productivity, posed a “significant challenge” for the trustees to adequately fund the pension scheme.

Of the 21,000 UK private companies analysed, 8 per cent displayed zombie-like symptoms, while 350 of these firms currently have DB schemes.

Commenting, KPMG pensions partner, Mike Smedley, said: “It’s clear that DB schemes that are less well-funded and attached to a zombie firm face challenges and will be more susceptible to external risks. Whether it’s change in the economic or political landscape or new regulation, companies and trustees need to avoid sleep walking into further danger.

According to KPMG, the highest concentration of zombie firms, are in the automotive, energy and utilities sectors.

“The health of pension schemes and sponsors in these situations are entwined, and there’s a real risk of a prisoner’s dilemma situation of second-guessing what others might do. Trustees, sponsors and their associated stakeholders and regulators need to work together to resolve these situations fairly,” Smedley added.

The so-called zombie firms do pose a risk for the wider economy and also threaten to exacerbate future economic downturns.

KPMG restructuring pensions partner, David Clarke, added: “However, even in these difficult situations, there are always options if the parties engage early on in the process.

“Development of a joint company or trustee strategy will enable the company to take advantage of the flexibilities in the pensions system, whilst protecting scheme members and providing upside for scheme funding over the longer term.

“Whilst such solutions can be challenging to agree, they protect the company, jobs and members’ pension benefits.”

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