UK - Nearly half of the companies in the FTSE 100, with collective UK pension scheme deficits of £37bn, paid out more in shareholder dividends over 2004 than it would have cost them to plug their shortfall.
In addition, Lane Clark & Peacock’s annual Accounting for Pensions survey found six companies - including British Airways and Rolls-Royce - have FRS17 deficits greater than 30% of their market capitalisation as at year-end 2004.
Bob Scott, partner at LCP, said the new Pensions Act 2004 could force companies to take steps to address their deficits, and could see a reduction in dividends paid out in 2005.
“Those companies with significant FRS17 deficits on their balance sheets may well find themselves restricted in terms of the dividends they are able to pay to shareholders and capital they can raise for financing,” he said.
Chris Tavener, partner at LCP, said FRS17 pension deficits, down £5bn from the previous year, remain “frustratingly high” despite record contributions by companies in 2004 and recovering equity markets.
The FTSE 100 Index would still have to climb from its current 5300 status to more than 6700 to eliminate the combined FRS17 deficit by this time next year, LCP said.
Cash payments by companies to their pension schemes totalled £10.5bn last year, including payments by BT and Royal Bank of Scotland of more than £1bn each. LCP said if current contribution levels were maintained, it would take eight years to wipe out the aggregate deficit.
“New funding regulations will mean pressure for higher contributions will continue, which could lead to increasing conflict between trustees and the sponsoring company,” Tavener said. “Companies will need to balance the needs of their pension scheme members with the expectations of their shareholders.”
Scott said the next 12 to 18 months would put the spotlight heavily on trustees and could see the emergence of more independent and professional trustees.
He said trustees who play a significant role in the company “will have to consider their position very carefully” in terms of their obligations to both the company and the pension scheme.
Additionally, pension deficits among the top European companies remained on par with last year’s figure of e116bn, according to analysis of the Dow Jones STOXX 50 Index.
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