Defined benefit (DB) pension scheme deficits across Scotland have almost doubled over the past 12 months, from £3.2 billion to £6 billion, according to research by pensions and risk consultancy Hymans Robertson.
The Hymans Robertson Scottish pension index, which analysed 27 schemes, found that 18 of these schemes were worse off in terms of deficit affordability than the previous year.
The research also found that the average level of pension deficit has increased by £100 million, which represents 3% of market cap.
It also suggested that it would take the typical Scottish organisation three times as long to pay off its deficit in full than the typical FTSE 250 organisation, while one-third (35%) of Scottish organisations would require more than a year of all earnings to clear current deficit levels.
Calum Cooper, partner and actuary at Hymans Robertson, said: “While the majority of Scottish [organisations] have being paying deficit reduction contributions over the past year, our report shows that the situation has worsened.
“It is evident that throwing cash at the problem may not be the best solution and that fully considering and managing the risks associated with their pension schemes is crucial for organisations too.
“The typical Scottish [organisation’s] scheme is carrying a significant level of unhedged pension liability, leaving itself vulnerable to situations in which investment conditions deteriorate.
”While the end goal of having a fully-funded pension scheme is likely to take 10 years for many businesses, it may be necessary to accept that managing this risk effectively means that this process might take slightly longer.”
