LONDON - A strong equity market performance could not stop pension scheme deficits in the FTSE 350 companies soaring 24% to £93bn last year, Mercer Human Resource Consulting has found.
Tim Keogh, worldwide partner at Mercer, said bond markets rising at the same time as equity markets had caused yields to drop and liabilities to grow. Favourable investment performance did little to dilute the value of pension scheme deficits in 2005,” he said.
Projections for 31 December 2005 year-end accounts suggest deficits had increased from £75bn in 2004. FTSE350 companies account for around half of UK occupational pension schemes in term of fund assets.
Mercer said the forecasts showed pension asset values in the FTSE 350 companies had risen by around £60bn to £422bn, but scheme liabilities grew by a similar amount, therefore increasing the total deficit.
The need to allow for increased longevity has been an additional factor, said Keogh.
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 all markets rise, Keogh said.
The figures are calculated on the basis of international accounting standards (IFRS), which will be used for the formal accounts of listed UK companies for the first time this year. The standard is similar to FRS17, but still measures deficits at a lower level than if schemes were to wind up.
Keogh suggested many companies had waited to find out the cost of their Pension Protection Fund levy and the strength of the new funding regulations before they revised their contribution plans. “Despite some companies making substantial contributions in 2005, often to facilitate a major deal, we have yet to see the radical change in contribution strategy the Pensions Regulator is probably hoping for, he said.
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