UK - Chemicals giant ICI has disclosed a massive FRS17 liability of over £450m in its latest company accounts.
But the firm - which is trying to raise £800m in a rights issue to bolster its balance sheet and reduce a £2.9bn debt burden - insists cash will not be diverted to replenish the pension fund.
If FRS17 was already fully in place and the ICI scheme deficit was shown on the balance sheet – a move due to take place in 2003 – the deficit between assets and liabilities would have widened from £216m to over £650m.
But ICI insists that the FRS17 valuation is only a snapshot and that both the company and investment analysts remain unconcerned about the shortfall.
ICI spokesman John Edgar said: “It has only really become an issue because of the political concerns around pensions and the way in which we deal with an ageing population in this country.”
Edgar was adamant that the planned rights issues was still on course and would not be diverted to replenishing the pension fund.
He said: “There is an implication in some areas that the rights issue is in some way going to have to diverted into the pension fund. Nothing could be further from the truth.”
The deficit could have been worse had ICI not moved a substantial portion of its assets into close-matching bonds last year. According to the December FRS17 valuation, the company has around 70% of its assets in bonds and about 30% in equities.
Following a funding review in 1997, ICI agreed to make payments into the scheme of £100m per year until 2003 but reduced that amount to just £30m in 2001 after an actuarial valuation in 2000 showed a solvency rate of 98%. This figure is likely to have fallen substantially since the equity market slide.
The ICI pension plan closed to new members in April 2000 – a move being copied by other pension schemes which are coming under increasing pressure to cap spiralling pensions costs and close their defined benefit schemes.
Currently more than a fifth of FTSE 100 companies have closed final salary schemes to new members with many more currently reviewing their pension provision.
Watson Wyatt advises the scheme.
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