Pension deficit of FTSE 100 companies at 75 billion pounds: study

Pension deficit of FTSE 100 companies at 75 billion pounds: study

	Published : Tue, 27 Dec 2005 21:45 By : Phil Bateman Print this Story

LONDON: The combined pension deficit of Britain's 100 largest publicly-traded companies grew to 75 billion pounds at the end of 2005 from 65 billion pounds at the beginning of the year, according to consultancy firm Deloitte and Touche LLP.

David Robbins, consulting partner at Deloitte, said, "Falling interest rates have increased the value of pension deficits. While the market value of pension scheme assets has increased over the year by around 15 per cent, this has not been enough.''

He feels the stock prices should rise by a further 30 per cent to eliminate the country's pension deficits.

The inter-bank interest rate was at 6 per cent at the beginning of 2000, which fell to 4.5 per cent in August this year, which had impacted the deficit, according to Deloitte.

Robbins was confident that the deficits at FTSE 100 companies will fall back to less than 65 billion pounds by the end of 2006 as companies this year have "finally accepted that pension deficits are company debt'' and are finding ways to manage the liabilities. Many companies are looking for ways to reduce the effect of falling interest rates on the liabilities. In particular, they are looking at using derivatives to limit the risk that liabilities will rise when interest rates fall. Robbins pointed out that pension schemes such as that of WH Smith and, to a limited extent, Schroders had switched to so-called liability-driven investment strategies.

Companies are also cutting on dividends and using the profits to reduce the deficits, according to a Confederation of British Industry report.

Robbins said the longevity factor has been taking a toll on pension scheme liabilities. "We're still in the position where most companies have not yet fully allowed for rising longevity," he added. When companies factored longevity in full, it would add a further 10 billion pounds to 15 billion pounds to total company pension scheme liabilities.

Experts are of the opinion that introduction of the Pension Protection Fund and the Pensions Regulator are putting additional burden on pension schemes. The Pension Protection Fund requires companies to pay a levy for the deficit, while the Pensions Regulator ensures faster funding of deficits.