Up to 18% of U.K. companies have had to borrow money to make up for pension plan shortfalls, according to a Mercer Human Resource Consulting study.
The figure is "higher than might be expected" and suggests that pension plans may be "paying back one loan by raising another, arguably on better terms because of tax advantages," Tim Keogh, worldwide partner at Mercer, said in a news release. Another 31% of the CFOs and treasurers at 51 companies surveyed had considered the option but decided against it. Borrowing - either by issuing debt or taking additional bank loans - is generally viewed as the quickest but one of the most expensive solutions to covering pension deficits.
Over a third of respondents said such deficits present a moderate or severe risk to credit ratings, which could affect the price that potential buyers would be willing to pay for the company. "While most companies are at limited risk from their pension scheme, there is a significant minority for which a deficit has become a major financial issue," Mr. Keogh said.
The study also said 47% of respondents prefer investing pension assets in bonds over equities to reduce volatility. At the same time, the median equity exposure among FTSE 350 companies is about 67%, according to Mercer.