Energy cost deal not enough to ease pressure on pension scheme sponsors

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The Energy Bill Relief Scheme (the six-month cap on energy prices announced by the Government and starting on 1 October 2022) won’t address the wider pressures being experienced by businesses. In the most serious cases, repercussions from the mini-budget could lead to requests for contribution deferrals from scheme sponsors.

This measure, and the scrapping of a planned increase in corporation tax, has been designed to help ease the cost pressures that businesses are currently facing. LCP believes that while these will be welcomed, the energy price cap is time limited and there appears to be no coherent plan to address the other fundamental challenges facing businesses, which include higher financing costs because of increasing interest rates, subdued demand as a recession looms and cost inflation (exacerbated by a rapidly weakening sterling). 

LCP is warning that these factors mean that scheme sponsors may soon face some tough decisions between investing in their business or paying pensions contributions, and in a lot of cases such decisions will be needed just to keep the businesses afloat. 

Fran Bailey, Partner at LCP, commented: “While the Energy Bill Relief Scheme and the scrapping of planned corporation tax rises may help companies through a challenging winter, it is unlikely to fully ease the pressure on many pension scheme sponsors. Businesses set strategies over longer time frames and may be hesitant to commit to investment plans without clarity over what the fall-out from the mini-budget will mean for interest rates and the wider economic environment in the UK.” 

“Whilst pension funding levels are improving significantly, many schemes aren’t yet at their final destination, and remain reliant on their sponsor to varying extents. Trustees really need to be mindful of how the current macroeconomic environment may impact on their covenant – now and over the timeframe that their scheme is reliant on this support.”

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