UK companies are not expected to have their credit rating downgraded, after a recent high court ruling on equalising guaranteed minimum pensions (GMPs).
Credit ratings agency Moody’s says it expects there would be a “minimal effect” on credit metrics – with larger DB pension schemes seeing deficits increase by less than 4 per cent.
Last month the high court ruled that Lloyds Banking Group’s pension scheme must equalise the GMPs between men and women.
This ruling affects almost all defined benefit pension schemes, as most have previously contracted out of the State Earnings Related Pension Scheme. T
hese GMPs were designed to provide benefits equivalent to these Serps payments.
The ruling has had a knock on effect in the corporate pension industry, with some firms putting a temporary block on transfers while they work out how this judgement will be applied.
Moody’s vice president Philip Robinson provided reassurance that this was unlikely to significantly increase pension deficits or effect the credit-worthiness of sponsoring companies.
He says: “Most companies face minimal effect on their credit metrics from the recent UK pension equality ruling as we expect relatively small increases to their defined benefit obligations.”
Moody’s preliminary assessment is supported by public statements from several companies including BT Group Plc, Johnson Matthey Plc and Compass Group PLC, indicating defied benefit obligation (DBO) increases below the 4 per cent level.
However, if adds that if the DBO increases are higher than anticipated by this initial research then this could have more negative implications for credit quality.
Other pension experts have said that this judgement is likely to cause “enormous cost” to many pension schemes, while delivering relatively little benefit for members.
Former government minister Ros Altmann says this ruling has highlighted the poor record keeping of many DB schemes, and shows how overly-complex rules damage the pension industry. She says this judgement could cause some already under-funded DB schemes to fail, and push more schemes into the PPF.