Pension fund deficits of FTSE350 companies at 93 billion pounds

Pension fund deficits of FTSE350 companies at 93 billion pounds

	Published : Fri, 06 Jan 2006 14:05 By : Cedric Benson Print this Story

LONDON: The largest 350 quoted British companies together have a pension fund deficit of 93 billion dollars, which represents an increase of 24 per cent over the year. This is in spite of several companies having funded their schemes through billions of pounds worth of cash infusions.

According to a study by actuarial consultancy firm Mercer Human Resource Consulting, the pension deficits of the FTSE 350 companies rose from 75 billion pounds to 93 billion pounds in 2005, while the total pension fund assets grew by 17 per cent to 422 billion pounds. Liabilities rose by a similar amount, the study found, with increases in the overall deficit being due to insufficient company contributions, changes in mortality assumptions and poor performance in the bond markets.

Mercer's worldwide partner Tim Keogh said favourable investment performance did little to dilute the value of pension scheme deficits in 2005. Bond markets rose at the same time as equity markets, causing yields to drop and liabilities to grow. The need to allow for increased longevity has been an additional headwind.

"Just as people have to pay more to trade up their house after a property boom, despite the value of their current home increasing, employers have to contribute larger cash sums to reduce their pension scheme deficits when markets rise," he added.

The study used the new international accounting standard, IAS19, to calculate the deficits.

It found an increasing number of the the country's 8,000 private sector final salary schemes are closing their defined benefits funds to new staff. Several have also asked employees to increase monthly contributions.

The newly set-up Pension Protection Fund will impose an extra cost on pension funds. To finance the PPF, the 8,000 private sector final-salary schemes it covers will have to pay nearly 600 million pounds in the next financial year.

Three major employers, Rentokil Initial, Arcadia and The Co-operative Group, have announced plans to restructure their pension funds, including introducing career-based pension schemes.