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Private-sector final salary pension schemes may hit record deficit

It is believed that the largest 200 pension schemes in the UK, all final salary schemes, could hit a combined deficit of around £140 billion within the next 12 months. This comes at a time when the UK final salary pension scheme, at least in the private sector, is under serious scrutiny with many companies looking to close their schemes to new entrants and also, where possible, transfer to money purchase arrangements. When you consider the size of the potential deficits over the next 12 months it is easy to see why companies are looking to reduce their liabilities and take action sooner rather than later.

The problem is that as pension fund deficits continue to increase so does the strain on the underlying sponsoring company and in many situations this can cause major problems with cash flow. Cash flow issues at this point of the economic cycle could literally see many companies fall by the wayside and into liquidation. One other concern is the fact that the situation is unlikely to get too much better in the short term as investment markets come under more pressure and the business arena continues to suffer.

While many people may never have considered the fact that a pension fund deficit could bring down a healthy operation, the truth is that increased cash flow into a pension scheme could have dire consequences for many businesses.

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