Experts: spend on sponsor growth to safeguard pensions

The advice contradicts that of the Pensions Regulator’s former chairman, David Norgrove, who last month condemned employers for relatively inactive management of defined benefit liabilities, saying companies with surplus cash should be spending it on derisking exercises.

Around the same time, BT took the decision to make a lump-sum payment of £2bn into its pension scheme from existing cash resources.

But scheme and sponsor representatives have hit back, claiming companies can expect a 2%-3% return on gilt investments and a maximum of 5%-7% for equity investments, whereas a 10% return is a realistic expectation if they reinvest in the business.

They argue preserving the sponsor will keep the scheme best funded long-term.

UK plc is currently holding £750bn in cash, equivalent to 5% of UK GDP, and is reluctant to spend or invest it.

Jim Bligh, pensions policy adviser at the Confederation of British Industry, said: “We’re operating in a different economic environment to that of three years ago – companies need to inject cash into jobs and business expansion to get the economy going again, and the regulator needs to recognise this.

“There is no greater protection for a pension scheme than a solvent, healthy employer.”

Charlie Finch, partner at LCP, said companies should spend cash on shareholder dividends and overseas investments as a matter of priority.

“It’s a surer way of hanging onto their money,” he added.