Deficit rise set to complicate liability negotiations

The consultant said a large number of schemes will soon be faced with their second actuarial valuation under the Pensions Act 2004.

But it said that - although the documentation requirements remain similar - many schemes are facing increased deficits at the same time as corporate sponsors were feeling the pinch on their finances.

It said it expected discussions regarding pension liabilities to take longer to conclude as a result - and urged trustees to begin the process as soon as possible.

Hewitt Associates principal consultant Russell Agius said: "As we head into recession, trustees are likely to find themselves caught in the middle of getting a fair deal for members at the same time as allowing companies the breathing space to weather economic reality."

Agius said the key sticking points for negotiations would be how to interpret "prudence" and agreeing on the appropriate level of deficit correction payments.

Russell Agius: "Understandably, many companies will be reluctant to pump further funds into a scheme at a time when they face liquidity constraints. Furthermore, what was an affordable level of contributions three years ago may no longer be sustainable."

But he said there were other solutions available to schemes.

Agius explained: "Combining larger deficits, weaker covenants and reduced affordability may quite legitimately result in longer recovery plans. However, coupled with an appropriate contingent asset solution, this approach may well be a sensible option."