Plug pension fund deficits with cheap debt


Plug pension fund deficits with cheap debt

UK corporates that use cheap debt to fill the gaps in their pension funds could enjoy significant strategic, cash flow and accounting benefits, say James Courtenay-Evans, Managing Director, and Shoaib Yaqub, Associate Director, Corporate Financing Solutions at RBS.

Economic Analysis

04 September 2013

Pension fund balance sheet

The low bond yields that have led to an increase in pension deficits and annual sponsor contributions have also created a unique opportunity to fund deficits faster with debt raised on attractive terms. For a profitable company, the cash flow benefits of this include crystallisation of the tax shield and therefore a tax deduction earlier – which will be more advantageous as UK corporate tax rates continue to fall.

But companies need to think about this now. Doing nothing could lead to more strain on their balance sheets and the cheaper debt available might then be out of their reach.

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Plug pension fund deficits with cheap debt.

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