Britain’s recession-hit companies risk being dragged down by their retirement obligations unless they are given more time to tackle ballooning deficits in their final salary pension schemes, according to the CBI. The employers’ lobby group is calling on the Pensions Regulator to intervene urgently and give companies at least 15 years to repair the shortfalls in their pension schemes, rather than the present ten.

The CBI, which has become increasingly outspoken on private and public sector pension issues, is making its call as part of an eight-point action plan that is published today.

In the plan, the CBI also calls on the Treasury to rethink its plan to taper tax relief on pension contributions for high-earners and demands an overhaul of accounting standards that it claims dramatically understate the strength of a fund.

The Government must reform poorly drafted legislation around company pension contributions and make it easier for companies to allow staff to work past the official retirement age of 65, the report says.

John Cridland, deputy director-general of the CBI, believes that unless urgent action is taken, more companies will close their final salary schemes. Some companies even risk insolvency if they are held to their current pension requirements, according to the CBI.

“We cannot allow sound businesses to be dragged down by their pensions, particularly during a recession,” Mr Cridland said. “We need much clearer signs of support from the Government, who hit these pensions again in the last Budget, and from the Pensions Regulator. Longer recovery periods will help firms to keep their commitment to pensions without forcing them to divert critical cash-flow.”

The regulator has previously signalled that it is willing to be flexible where companies are struggling to find the cash to top up their pension pots, while at the same time warning companies not to prioritise dividend payouts over scheme funding.

The regulator said that the recession was no excuse for covering the true cost of a scheme’s liabilities, but said that it would be flexible when there are “genuine issues of affordability” for companies.

Bill Galvin, executive director of strategic development at the Pensions Regulator, said: “All recovery plans that come to us are looked at on a case-by-case basis. Those longer than ten years may trigger greater scrutiny by the regulator and we have no plans to change this approach.”

Final countdown

£188bn
Deficit of 7,400 UK final salary pension schemes monitored by the Pension Protection Fund as of April 30

6,429
Schemes in deficit, or 87 per cent of the total 400 Fewer final salary schemes compared to the same time last year

£772bn
Total assets of final salary schemes

Source: Pension Protection Fund

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive