UK Merger Market Hurt by DB Pensions

(December 10, 2009) – Liabilities accruing for defined benefit pension plans are inhibiting merger activity in the United Kingdom, a new study shows.

According to a CBI/Watson Wyatt survey, 33% of companies see their pension liabilities as stopping corporate restructurings and mergers because, due to U.K. law, companies winding up a scheme must fund it fully. This figure is double what it was two years ago, before the global financial collapse reduced pension fund levels and sponsors’ abilities to top them up. The outlook was equally as bleak for another parts of the corporate world: Fifty-six percent of respondents claimed that pension costs hurt profits.

The study also shows that, although many are considering closing or altering existing plans, more than a third polled claimed that they have plans to close or alter existing plans.

The U.K. will, in 2012, introduce new personal accounts similar to the American 401(k), which would require only a 3% contribution from employers. However, at least as of now, 75% of those surveyed said that they would still use auto-enrollment in company-sponsored pension plans, as opposed to the government’s solution.

CBI/Watson Wyatt surveyed 194 companies with a combined total of more than one million employees.