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Pension Fund Deficits Are Rising

Those who saw the headline results from BT may have missed a small but telling comment towards the end which confirmed that the company's pension scheme had slipped into deficit and needs topped up. This could be the start of a season of shocks on the pension fund front with more and more companies struggling to keep up with funding requirements after disappointing investment returns. So what is the solution?

The problem with the new pension fund regulations is the fact that they are very short term and do not appreciate the long term nature of investment. By trying to find a balance between what is required now and into the future, the authorities have erred too much on the side of caution. This has seen two new trends :-

Trustees Moving To Less Volatile Investments

The last few years has seen more and more trustees switch large parts of pension funds into GILTs and other fixed interest securities. While returns from these are lower in the long term they do allow trustees to more closely monitor and forecast the level of funding now and that required in the future.

Companies Are Being Forced To Top Up Pension Funds

While there will be many who totally agree with companies being forced to top up their pension funds, this may not always be possible and even if it is, it will work to the detriment of the company's long term prospects and performance.

Life is tough in the pension fund industry and likely to stay that way for some time to come!

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