LONDON (Within the Law) - Pension deficits are a major problem for law firms, but none more so than Clifford Chance. Its deficit of £292 million is higher than any of its magic circle peers. However, the bad news is that it may be even worse than believed.
The company closed the scheme to future accruals in 2011. Its current plan for clearing the deficit is for the partnership to contribute £18 million a year to the scheme. This, they hope, will allow them to clear things. However, there is a problem with that.
The £292 million figure was calculated in 2016. Since then, a lot has happened. We’ve had a Brexit, a pandemic and interest rates have continued to drop. Clearing this could take much longer than they think.
The problem stems from Clifford Chance’s last actuarial valuation. These use three metrics: bond yields, inflation rate and life expectancy. When it last made its valuation in 2016 ten year government bonds were 1.4%. When they carry out their valuation this year, they will be around 0.2% which could result in a £100,000 increase in the firm’s pensions liability.
On the brighter side, the pandemic might continue to dampen inflation while falling life expectancy could get them out of jail. A study from Oxford University expects life expectancy to fall by 1.2 years for men and 0.9 years for women. Falling inflation could increase real return on assets, which may have a positive impact. However, this reduction would be minimal in relation to those plummeting bond yields.
The situation, then looks, precarious. Its pension liabilities are set to rise rapidly this year. If analysts’ fears of an asset price bubble come to fruition, its assets could be falling just as its liabilities are rising. If this happens partners could be asked to cough up significantly more this year.
(Written by Tom Cropper, edited by Klaudia Fior)