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Pension Funds

KPMG: New U.K. guidelines could worsen pension fund deficits

A new U.K. pension funding code could add a further 100 billion ($133 billion) to U.K. pension fund deficits and double pension contributions for a typical plan sponsor, according to new analysis by KPMG.

KPMG expects pension funding deficits to be broadly unchanged over the year to March 30 at about 180 billion on stable markets.

However, the pension funding valuation code, which must be followed by trustees of workplace defined benefit funds in the U.K. and which will be released yearly by The Pensions Regulator, could force employers to be prepared for stronger funding standards and extended protection of their plan participants.

The code is expected to be approved by the U.K. government and TPR by the summer and go into effect in 2020.

KPMG estimates that an average pension fund could see its deficit rise by 50%. Deficit contributions for a typical plan are predicted to double, too, reflecting higher deficits to be met more rapidly than the current typical seven-year plan.

Strong employers that currently rely heavily on investment returns could be forced into even greater increases in contributions, KPMG warned.

"Employers will question whether higher cash contributions are the most effective way of protecting the plan, particularly if this comes at the expense of investment in the business," said Mike Smedley, pensions partner at KPMG, in a news release. "And trustees may come under pressure to implement ever more prudent investment strategies. As a result, we expect to see more creative solutions to bridge the gap and more contingent funding arrangements as a substitute for cash contributions."