Large deficits will force more ‘pension zombies’ into insolvency

Large deficits will force more ‘pension zombies’ ...

Latest PPF deficit figures are released along with KPMG's predictions on future deals.

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Press Release
  • Prediction comes as latest PPF deficit figures are released
  • KPMG also predicts more companies will strike deals with the PPF
  • Regional data analysis shows West Midlands is the highest burden upon PPF compensation

The latest deficit numbers for UK corporates were released today indicating that cumulative exposure of the Pension Protection Fund to UK defined benefit scheme stood at £227bn. This represents a 32% increase on levels experienced one year ago, and has remained over £200bn for each of the past twelve months.

KPMG’s restructuring experts have predicted that persistently high pension deficits are likely to force more companies into administration. The PPF’s risk analysis, published recently also shows its exposure to insolvencies over the coming year has increased by a factor of six over the past year to £1.8bn.

David Costley-Wood, restructuring partner at KPMG, commented: “Pension deficits appear to have hardened at a high level and, as a result, companies with large pension liabilities can no longer cross their fingers and hope the problem will go away. In many cases, large companies can manage the situation, but for SMEs, or those spun out of the public sector, the problem may be insurmountable. We have already seen AEA Technology go through a ‘pre-pack’ administration process in the last week, as the ex public sector company could no longer sustain a £450m pension deficit, which dwarfed its revenues. We have advised on a steady pipeline of cases in the past year, with similar pensions issues, and we therefore expect to see more ‘pension zombies’ tipped into administration.

“While a substantial imbalance between profit and pension liability may seem impossible to resolve, companies do still have options and strategies to deal with pension liabilities. The PPF can agree a deal to take the scheme and avoid an otherwise inevitable insolvency. But companies should be aware that the PPF negotiates hard and will demand a significantly better return than expected on insolvency and an anti-embarrassment equity stake. The recent administration of Dawson International received some criticism, which suggested the PPF had closed the door on compromises. This is fortunately not the case. To some extent, setting precedent and agreeing compromises with the PPF is still in its infancy but we have been involved in an increasing number in recent months and expect to see a meaningful change in the level of compromises agreed over the next year.”

KPMG has also analysed the latest defined pension scheme deficits by region.

Key highlights:

  • Unsurprisingly, around half of the UK’s pension deficit lies with companies registered in London, comprising financial institutions and large listed PLCs;
  • However, 50% of pension deficits are held by companies registered in the regions and comprise mainly of manufacturing businesses;
  • Manufacturing represent 41% of schemes currently in PPF assessment;
  • West Midlands is the highest burden upon PPF compensation due to the number of manufacturing insolvencies in the region;
  • Scotland is also high on the list but this is dominated by one large pension deficit in the financial services sector;
  • In contrast, Wales, Northern Ireland the North and East Midlands appear to be sheltered from the worst.


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For further information, please contact:

Sorrelle Cooper, Senior PR manager, KPMG

T: +44 20 7694 8527

M: +44 7932 078218



Media enquiries

KPMG Press Office: 020 7694 8773


Notes to editors

These are indicative figures only, based on registered offices.

2008/2009 - the PPF surplus peaked in May 2008 at £83 billion before reaching a £201 billion deficit in March 2009.

2011/2012 - the PPF surplus peaked as recently as January 2011 at £39 billion but reached a record deficit of £312 billion in May 2012, and hardening over the past year at in excess of £200 billion.


About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

KPMG International provides no client services.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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