FTSE pension deficit has "barely changed"

09-08-2006

The overall pensions deficit faced by Britain's largest companies has "barely changed" despite record contributions from employers into retirement funds for their workers, a new report has found.

The UK's FTSE 100 companies have pumped a record £12.1 billion into their pension funds over the past year, according to a survey of final salary schemes by actuary firm Lane, Clark and Peacock (LCP).

But despite the 12 per cent increase in the amount paid into funds by companies, the combined pension fund deficit of the country's leading blue chip companies fell by just £1 billion in the year to July.

The pensions black hole faced by the FTSE 100 now stands at £36 billon, down from £37 billion a year earlier.

LCP said that volatility in equity and bond markets were responsible for the small drop. It said that the aggregate deficit in the pension funds of the UK's top firms had hit a high of £54 billion in January 2006, before plummeting to £29 billion in April and then climbing to its current level.

Just five of the 100 final salary schemes reviewed by the actuary were found to be in surplus – those of Associated British Foods, the Gallaher Group, Johnson Matthey, Old Mutual and Schroeders.

Meanwhile, British Airways, BAE Systems and ICI were all found to have a pension deficit equivalent to at least 30 per cent of their market value.

Despite the lack of progress made by the FTSE 100 in reducing their pension shortfalls, LCP said that companies were still on track to clear the aggregate pension deficit by 2012.

However, it also warned that the majority of firms would by then have closed their final salary schemes to new employees, with new legislation, aimed at increasing the amount of money companies set aside to address their pension deficits, blamed for the trend.

Commenting, LCP consultant Charlie Finch said: "The Pensions Act 2004 and associated legislation encourages companies to accelerate the funding of their pension deficits.

"Although the new legislation makes it more likely that pension scheme members will receive their promised benefits, the price could be more scheme closures as companies are forced to commit cash to funding their deficits instead of paying benefits for current employees.

"Some said that all we required was a very good performance from the equity markets. The markets have done well, but deficits have been stubborn and only reduced marginally," Mr Finch added.


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