Finance chiefs with defined benefit pension schemes in deficit are considering upping their contributions to their company's pension fund to reduce potential shortfalls, research suggests.
The study, carried out by Prudential, reveals 84% of finance directors at small and medium sized firms will be increasing their contributions over the next two years.
Of these, it suggests 46% will be upping donations by 10%, with 25% upping them by between 21% and 30%.
In addition, research suggests a fifth of finance directors are set to make changes to their overall investment policy.
However, Prudential says those responsible for managing company pension funds should not be over-reliant upon cash contributions as the only way to fund pension schemes.
Ted Clack, director of bulk annuities at Prudential, says: “It’s apparent that when companies became aware of their pension deficit, many made cash injections to their pension scheme as well as fundamental changes to their investment strategies and pension rules.
“This is borne out by research which shows that the average increase in cash contributions to pension funds over the past three years was 14.5%.”
He adds: “However, an over-reliance on cash to the detriment of other solutions could lead to future problems with, for example, accounting surpluses which cannot be returned to the employer.”
With a defined benefit plan, a company can rectify a pension shortfall by increasing investment returns or putting aside more money into the pension plan, thereby reducing that company's net income.
According to the research, manufacturing firms are the most likely to increase cash contributions based on past evidence, with services companies upping their contributions the least.
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From 6 April 2019