UK - Market volatility has resulted average pension funding levels dropping to 87% from 100%, according to new research from Hewitt Bacon & Woodrow (HB&W).
The report, which examined pension disclosures from 69 FTSE100 companies under new accounting standard FRS17, also found that over 50% will now have pension liabilities exceeding 20% of their current market cap.
HB&W’s Brian Wilson of said: Unless equity markets improve dramatically, the second year FRS17 disclosures will make interesting reading as the volatility of balance sheets under the new accounting standard becomes apparent.
It should be stressed that FRS17 figures do not relate directly to the security of members' benefits within the schemes. It is extremely rare for solvent companies not to make good funding deficits in schemes.
Financial analysts should be looking hard at pension liabilities to see whether changes in levels of cover might affect company share prices. We do not believe however that analysts are giving pension liabilities the attention that they deserve.
Other key findings included: - average funding levels of UK pension schemes under FRS17 at company year-ends 2001 was 100%. This compares to disclosed funding levels averaging 115% under the old standard SSAP24, that is being phased out- expected long term returns on UK equity investments varied from 6.5% p.a. to 9.0% p.a. illustrating a wide diversity of opinion as to long term market movements. The most popular assumption was 7.5% p.a.
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