Big firms' pension deficit 'halves'

18-07-2006

Big firms' pension deficit 'halves'
The combined value of FTSE 100 companies' pension deficit has almost halved over the last six months, auditor Deloitte has claimed.

At the beginning of the year the combined deficit stood at £75 billion but it is now just £40 billion, the accountancy firm states, attributing the fall to a slump in the value of bond markets used to gauge pension liabilities.

Deloitte made its conclusions after taking into account company balance sheets held by the recently formed International Accounting Standard, although they admit that the equity market has remained unpredictable in 2006 so far.

Falling bond prices have contributed to the halving of the deficit by countering the effect of rising inflation, analysts claim, with the typical asset portfolio of FTSE 100 companies' pension schemes increasing by three per cent during the last six months.

David Robbins, a consulting partner at Deloitte, explained that new legislation from the International Accounting Standard for pensions meant more FTSE companies were revealing how long they expected members to receive benefits for after they retire.

"Increasing uncertainty about future life expectancy is a key long term risk for companies operating pension schemes, but in the short term, it is the conditions in financial markets which create short term volatility in company balance sheets - and a headache for the finance director," he said.

Mr Robbins added that the new trend appeared to be for FTSE 100 firms to speed up the funding of their schemes to plug the deficits, but he revealed that this was unlikely to make the market any more stable.

"Despite market movements since the start of the year, the cost of buying assets which match pension payments such as inflation-linked bonds is still relatively expensive and the assets are hard to come by.

"Cost issues aside, a poorly funded scheme will have insufficient funds to purchase the volume of matching assets required relative to the current value of the liabilities making it difficult to stabilise the situation," he concluded.

Related categories: Management / Business, Banking / Finance.


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