Defined benefit (DB) pension schemes could suffer from the credit crunch, warns actuary Lane Clark & Peacock (LC&P).
The warning follows The Bank of England’s credit conditions survey for quarter three which says lending to the corporate sector has dropped.
LC&P says the Bank of England expects corporate credit availability to fall further as fees, commissions and interest margins have rise. Lenders also expect to impose stricter covenants, seek additional security and reduce credit line limits.
David Poynton, head of credit analysis at Lane Clark & Peacock, says: "This means that many sponsoring employers will be faced with increased costs of financing, as well as lenders looking for additional security for their lending.
“Shareholders are the most obvious losers from these developments but the additional financial strain on employers can also weaken the security of pension benefits.
"For pension fund trustees, the key to deciding an appropriate approach on funding and investment issues is a clear understanding of the situation.
"The crucial first step is engaging with the employer to obtain the best possible understanding of its financial position and any impact from the tightening of credit markets - and what the options are for addressing the situation."
Last month the actuary warned some UK DB pension schemes could become insolvent as the fall-out from the US sub-prime mortgage crisis hits the UK.
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