Contact: James Igoe
Deloitte
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Many small and medium sized manufacturers (SMM) could face insolvency unless they take radical action to deal with their pension deficit, says Deloitte, the business advisory firm.
According to recent figures from the Pensions Regulator (TPR) and Pensions Protection Fund (PPF) UK manufacturers have £19bn of pension deficits, and it is SMMs who face the most precarious future. They often have deficits greater than the total value of the business and for many SMMs insolvency seems inevitable.
Jane Lodge, UK Manufacturing industry leader at Deloitte says:
“Increased life expectancy and lower than expected investment returns are contributory factors creating a situation where many UK manufacturers may never clear their deficit. Unless this issue is addressed, the most likely outcome is that manufacturing companies may fold and their pension schemes will be taken over by the PPF.”
Insolvency could result in shareholders receiving little or no return on their investment whilst employees and former employees could receive greatly reduced pension entitlements. Further, the PPF could become overwhelmed by the net liabilities of former manufacturing companies.
For many of these businesses, the alternative lies in a Company Voluntary Arrangement (CVA). A CVA allows manufacturers to offset some of their deficits against future earnings. Although stakeholders need to accept a smaller return, it may be greater than would be available through a formal insolvency procedure.
Tony Clare, pensions partner at Deloitte comments:
“A CVA, backed by the various stakeholders, including the PPF and TPR, can result in a solvent company and job security, albeit at the partial expense of the pension scheme. The alternative would likely result in the loss of all jobs and an even smaller entitlement for pension scheme members under the PPF.”
Lodge adds: “What initially looks like a hopeless situation can be turned around, resulting in a revitalised manufacturing company with a solvent balance sheet free of historical pension liabilities.”
ENDS
Notes to editors
About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions. Services are provided by member firms or their subsidiaries and not by DTT.
Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.
The information contained in this press release is correct at the time of going to press.
