UK - Pension contributions by FTSE100 firms almost doubled last year but two-thirds of firms saw their deficits grow, a new report shows.
Contributions to final salary schemes almost doubled to £11.6bn in 2003 but after paying out £7.3bn in pensions and £3.5bn in interest on the shortfall, they fell short of that required to reduce deficits.
The report – carried out by independent consultant John Ralfe (pictured) for RBC Capital Markets – says FTSE100 firms faced a combined shortfall of £60bn at the end of last year. This was a £6bn reduction since the end of 2002 but Ralfe claimed this was mainly down to a handful of firms making large contributions, and stock market gains.
Contributions totalling £4.5bn were made by five top companies – BP, HSBC, Marks & Spencer, GlaxoSmithKline and Barclays. Only GSK expects to match its £400m contribution in 2004.
The report warned that too many companies were relying on a stock market recovery to wipe out their deficits. Two-thirds of the FTSE100 with DB schemes made a contribution less than the cost of new pension promises and interest on their prior year deficit – a total shortfall for the year of over £2bn.
Ralfe – who was formerly head of corporate finance at Boots and helped mastermind its scheme’s 100% switch to bonds – said: “Surely the days of whistling in the dark, hoping that the financial markets will plug deficits are gone? The only real way to shift a pension deficit is through a one-off contribution on top of regular contributions.”
He warned that, while larger companies had small deficits in relation to their size and could easily borrow to make a one-off contribution, the real issue was for companies with a larger relative deficit and a poor credit rating.
Ralfe said: “Over the next couple of years we may see further large one-off contributions from the strongest companies, leaving pension holes concentrated in the weakest FTSE100 and FTSE350 firms.”
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