Think pensions are a bit of a yawn? Well wake up there at the back.

 

Company pension funds have for years been a bit of a communications black hole: the PR problem that dare not speak its name. Most financial journalists aren’t interested, and most companies are not geared up to answer detailed questions. But it would be wise to get clued up, because that is likely to change. A pensions crisis has been brewing for years, and it is beginning to come to a head.

 

Pensions have climbed the news agenda because of the coalition’s plans to abolish the default retirement age, which opens up a whole new set of staffing and management challenges to businesses in terms of dealing with mature employees. Government measures to limit pension increases to cover inflation have also hit the headlines.

 

But the most contentious area is how companies are trying to reduce their pension obligations to employees – or even to shed them altogether. This has already led to the threat of strike action at organisations including AstraZeneca and the BBC, as angry workforces hit back at cuts to their retirement benefits.

 

There will almost certainly be more of these headlines. The latest annual survey by actuaries Lane Clark Peacock of FTSE 100 pension funds shows that leading companies had a combined deficit of £51 billion in their pension funds. That had dropped from the previous year, but it is still an awful lot of red ink. There are also worrying indications that companies are still not taking sufficient account of their exposure to pension fund risks. More than 30 neither made reference to these in their accounts, nor mentioned any steps to reduce them, despite in some cases running large shortfalls. Almost a quarter had announced changes to their pension schemes, often reducing or freezing benefits for employees.

 

All of these issues are tricky communications challenges, with a need for sometimes quite complex messages to be conveyed to investors and staff. Companies have to take action to address their pension shortfalls; in many cases the deficits are so outsized in relation to market value that companies are in effect large, underfunded retirement schemes with a small operational business tacked on. The measures taken, however, are likely to be controversial and to pit the interests of different groups against one another. Investors want dividends, but employees want more payments into the pension pot. Many companies won’t be able to afford both. Finance directors may feel that having to funnel large sums in the direction of pensioners compromises their ability to invest in the business, and to create jobs in the future. Reconciling those competing interests is not going to be easy. Companies are increasingly interested in hiving off their pension funds to specialist operators, which may be a good solution, but it can easily look as though they are trying to wriggle out of their obligations.

 

The approach to pensions so far has been to sweep the problems under the carpet. This strategy – or rather, non-strategy - is unlikely to work in future. New accounting rules will require greater disclosure, and analysts, financial journalists and trades unionists are beginning to recognise the full implications a deficit can have for all the stakeholders. Companies will need to have honest discussions with their staff, their investors and the media, or their reputations will be on the line. Pensions are in danger of becoming very interesting – and not in a good way.