UK - The total deficit of FTSE 100 pension schemes would amount to around £100bn (US$141bn) if liabilities were valued using "normal" levels of credit spreads, Pension Capital Strategies warns.
According to a latest report, PCS said its estimate of the total surplus in the pension schemes of the FTSE100 amounted to £12bn at December 31 2008. This compared with an £8bn deficit at the end of 2007.
PCS managing director Charles Cowling said: "Pension funding positions in company accounts have improved in 2008, largely due to deficiencies in the accounting rules, as significant asset losses in pension schemes have been matched by reductions in the accounting value of pension liabilities."
PCS said under the accounting rules the value of a company's pension liabilities was linked to the value of AA bonds. As AA bonds have fallen in value in the credit crunch, so have the accounting value of pension liabilities.
Cowling added: "The fact that AA bonds have fallen in value is not a good reason to regard your pension liabilities as being a lot lower. It is just a quirk of the accounting rules that is hiding the problems that many pension schemes currently face.
The consultant added there had been a noticeable growth in the number of FTSE 100 companies where the pension scheme now represents a material risk to the business.
According to its data, at December 31 2008, 13 FTSE 100 companies had total pension liabilities greater than their equity market value.
In addition, for British Airways, Invensys, BT, Lloyds TSB and HBOS (now the Lloyds Banking Group), total pension liabilities were more than double their equity market value.
Since 31 December, both Royal Bank of Scotland and Barclays have also seen the significance of the relative size of their pension liabilities grow considerably.
The importance of this was highlighted by a recent warning from Moody's on the impact of pension liabilities on credit ratings, PCS said.
Cowling concluded: "With the risks represented by their pension schemes becoming ever more significant, it is not surprising that many companies are looking at strategies for exiting their pension liabilities.
"We believe that over the next five years the large majority of private sector companies will have closed their final salary schemes to all employees and implemented strategies aimed at getting rid of their historic pension liabilities which are now causing them so much pain."
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