'Pensions crisis may sink firms'

THE looming pensions crisis could send some companies to the wall, a leading insolvency expert warned today. Rising pension costs, combined with a less buoyant economy, could send already cash-strapped companies into receivership, according to accounting firm KPMG.

The warning came as carmaker Peugeot UK, which employs 3,500 people in Coventry, revealed that its pension pot is facing an £86m shortfall. The firm has called on workers to increase their pension contributions and has closed its final-salary scheme for new recruits. Other companies with pensions deficits include Marconi (£ 137m), Securicor (£54m) and ICI (£453m).

KPMG partner Jim Tucker said companies in manufacturing and others which have cut back workforces were most at risk. 'These companies may only have a small number of existing members to fund a scheme which is supporting a large number of pensioners or deferred members,' he said.

John Davies, a pensions expert at the Association of Chartered Certified Accountants, said: 'There have been bigger shortfalls than Peugeot's but £86m is still a fairly worrying figure,' said

Peuegot said the company would have to pay a contribution equal to 43% of the overall wage bill for the next year and 28% for the following four years to meet the full cost.

In a letter to workers it called that 'an unacceptable situation'. Instead it wants staff to raise their contributions from 3% to 5% of their wages. The final salary scheme will be closed to new recruits who from April will have to join a company-backed stakeholder scheme. Union Amicus MSF is fighting the changes.

Scores of companies have already switched from final-salary schemes, which guarantee a certain level of benefit on retirement, to money purchase schemes, where payouts are dependent on stock market performance. The burden of risk is shifted from employer to employee.

The change has been triggered by poor returns from shares in recent years and an anticipated change in accounting rules next year. Companies will be forced to keep final- salary pension pots fully funded rather than topping up over time.

Pensions consultancy Bacon & Woodrow recently named a handful of companies in the FTSE 100 index that it estimates are not fully funded, including Allied Domecq, Six Continents, Carlton Communications, Compass and Granada.