Firms to bargain harder in pension deals

LONDON (Reuters) - Companies sponsoring defined benefit (DB) pension schemes will demand concessions from trustees to make good deficits in the new year, consultant Aon forecasted on Thursday.

In the recessionary environment, companies will seek contribution cuts or even suspensions on contributions in a series of protracted negotiations, Aon consultants Anthony Light and Paul McGlone said.

Discussions could also lead to longer grace periods allowed by the Pensions Regulator before schemes reach full funding. At the moment the regulator allows a maximum of 10 years to plug pension deficit.

Sponsor responsibility could also be shifted to the parent company within larger groups, the consultants said.

Such moves are likely to spark renewed fears that workers' retirement savings are being sacrificed as companies battle the fallout of the financial crisis.

However, trustee boards are in turn starting to demand forward-looking assessments of the sponsors' financial shape, stress-testing their business assumptions to check if they need extra contributions to cover deficits in case of bankruptcy.

This marks a break from the past, where trustees reviewed their pension covenants on historical data, such as annual reports, Light said at a briefing.

The new assessment would also include a look at the value of the company's assets and the demands of other creditors.

An Aon survey of trustees in the last few weeks, which sampled 200 trustees across the country, revealed between 64.7 percent and 71.43 percent had taken into account the covenant strength when deciding their investment strategy.