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Global Pension Anxiety

The crash of global sharemarkets over the past 3 years has exposed coverage of liabilities for pensions paid out of company pension schemes. An article in this week's Economist estimates that UK corporate funds hold assets which cover only 85% of accrued pension liabilities. But the UK (and Australia) is better placed that the US where pension funding has tended to be a bit skinnier, and Germany where there is no real funding at all, just book reserves.

Now here's the interesting part. Companies will be required to put extra contributions in and big ones in some cases. This could depress share prices even further as lower profits will result. The downward stock spiral may last a little longer. Credit rating agencies are grappling with the consequences of this in allowing for underfunding debts when rating individual companies.

This is baby boomer problem. Most of the pension liability relates to the boomers who will retire in the next 10 years and that's not much time to make up for lost ground. In the US there is a public rescue body (the Pension Benefit Guarantee Corporation) which may come into play if companies and funds collapse. No such body exists in Australia despite the misnomer given by the Keating government to Superannuation "Guarantee" Contributions. The age pension looks like it might need to be around for a good while yet.

Posted Saturday, 17 May 2003

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