Defined benefit (DB) pension scheme trustees have been encouraged to review how they are managing their pension risks after data from the Office for National Statistics (ONS) showed that company insolvencies increased in March.

According to the ONS, total insolvencies were up by 16 per cent compared to March last year, while the number of compulsory liquidations more than doubled, up by 106 per cent year-on-year.

Furthermore, total bankruptcies and debt relief orders increased by 28 per cent over the same time period.

Cardano Advisory managing director, Alex Hutton-Mills, described the increase in bankruptcies and debt relief orders as more troubling than company insolvency figures, stating that it has “never been more important” for DB pension sponsors and trustees to review how they are managing their pension risks.

“Trustees of DB pension schemes must have access to up-to-date information on the levels of financial debt held by their sponsoring companies, as well as the maturity dates of that debt,” he said.

Despite DB schemes seeing their funding levels improve recently, Hutton-Mills said that directors of those sponsoring companies need to consider the timing and impact of refinancing their financial indebtedness to mitigate any unforeseen shocks or cashflow challenges.

He waned that these shocks or cashflow issues would impact the trading business and the underwriting capacity of that business.

"As [the] insolvency statistics have shown, it is impossible to ignore the continuing impact of the cost-of-living crisis on UK companies, who continue to feel increasing pressure on cash flows,” Hutton-Mills continued.

“This will undoubtedly call into question the capacity of those companies to support the risks associated with their sponsored DB pension schemes sitting on their balance sheets.

"With the Bank of England base rate at 4.25 per cent, its highest since the Great Financial Crisis of 2008, and inflation still in the double digits, without proper planning many companies are going to find it increasingly difficult to meet their pension obligations while also managing cashflow and potential debt refinancing requirements."

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