Lane Clark & Peacock has warned that the credit crunch may damage defined benefit schemes by damaging scheme sponsors’ access to credit.
LCP head of credit analysis David Poynton says: “Pension fund trustees need to understand whether the employer backing their fund is at risk from the current credit crunch.
“Companies needing to refinance debt in the near future especially those without investment grade credit ratings may find themselves facing higher interest bills and more onerous borrowing terms, reducing the resources available to secure pension benefits. At worst this situation could lead to insolvencies and a reducation in the amounts which pensions schemes can recover from insolvent employers.”
LCP warns that trustees must make sure they understand the sponsor’s current debt management arrangements and group structure.
LCP also says they must also understand the nature and timeline of negotiations for renewal and financing and ensure that arrangements are in place to make sure that the trustees are notified of changes that could weaken a pension scheme’s situation.