Remuneration affected by defined benefit funding

The increased cost of funding a defined benefit (DB) pension scheme has had a negative impact on the overall remuneration package almost half (49%) of UK companies are able to offer.

A further 48% expect it to have a negative effect in the future, according to Aon Consulting’s The employer survey 2007, which questioned representatives from the largest UK DB schemes about the impact that funding the scheme had on their ability to compete; their share price; the price of goods and services, and remuneration package.

More than one-in-five (22%) companies believe the cost of funding their DB scheme is impacting negatively on their share price, but this figure has decreased year-on-year. In 2006, more than a third (36%) of companies felt that this impacted on their share price..

The survey also found 31% of companies were concerned that funding is already negatively affecting their ability to compete effectively, however, this is also down from last year when 50% said that this was the case.

Paul McGlone, principal and senior actuary at Aon Consulting, said: "Based on the survey results, the message from employers seems to be that the cost of pension deficits is most likely to be met by changes to employee remuneration, with customers being hit second, and shareholders suffering least from the pension debts. It is logical that companies will take this approach given that employees are the ones who will benefit from the pension scheme. However it will grate with some employees and unions."