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The Future of Pensions

The volume of activity impacting the pensions landscape has been unprecedented in recent years and will reverberate across corporate UK for years to come.

Bare feet on grassConsider the roll call: the introduction of the Pension Protection Fund and its levy; the influence of the Pensions Regulator on funding and M&A transactions; radical changes in tax treatment for individuals as well as corporates; trends towards defined contribution and flexible benefit strategies.

Then of course there are the Turner Report and the Pensions White Paper with which corporates will have to contend.

At Deloitte we work with our clients to develop their pensions strategy – advising them on how to finance and stabilise their pension schemes, what benefits they should provide and how to operate their pension schemes. We work with corporates to provide complete solutions to complex pensions problems. In our experience there is no ‘one-size-fits-all’ approach. Yet there is one absolute: for businesses to remain competitive and financially strong, pensions issues will need to be managed as effectively as any other business risk.

Why do you need a pensions strategy?

In the new landscape, pension liabilities are now viewed as company liabilities and so pension risks are increasingly being seen as a key business risk. Broadly speaking, there are three primary issues to consider:

  • Benefits - the ‘why’ and the ‘what’ variables which involve serious thinking about the appropriate role of pensions in the context of strategies for reward
  • Financing - the ‘how much’ thinking which covers the pace of cash funding, financing and accounting implications, investment strategy and risk management
  • Operations - the ‘how’ consideration, which encompasses thinking about how best to deliver benefits to your people in a way that controls risk, minimises governance issues and enhances the corporate brand

While there is no single, clear-cut answer to these challenges, it is vital that a company understands as much as possible the various opportunities and threats currently in play. Companies need a pension strategy aligned to their commercial and HR objectives that brings certainty and stability through effective deficit management, adequate future funding, efficient operation and the management of employee expectations. A successful solution will depend on many factors. They include the company’s structure, risk appetite, tax position and commercial prospects, as well as the size of its deficit and the attitude of the trustees.

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