UK - FTSE 100 companies made "little progress" in reducing their pension scheme deficits in 2004, research from RBC Capital Markets suggests.
The study said that several of Britain’s largest companies also failed to make any dent in pension shortfalls, despite a rise in equity markets and an increase in company contributions.
In 2004, contributions from the FTSE 100 across the country totalled £11.4 bn but deficits continued to amount to a staggering £60bn.
And after meeting the cost of new pension promises and paying interest costs on last year’s deficit, less than £1bn was left to reduce the underlying shortage.
However, shortfalls are not uniformly spread among the FTSE 100, as a mere five firms - including British Airways, BAE Systems, ICI, Rolls-Royce and British Telecommunications - account for nearly 20% of the total. Pensions consultant John Ralfe said: “The problems with Britain’s largest companies are more concentrated that people generally recognise.
“When you look at the FTSE there are 70 companies where the size of pension deficit is only 5% or less. This is pretty small as they represent 75% of the market capital.
“But if you look at the other 25%, all the 30 companies have similar characteristics in terms of the size of their pension deficit in relation to the size of the company.
“And a lot of these similar companies have very huge deficits.”
He also commented that firms appeared to be banking on big rises in equity markets to help them out.
Ralfe commented: “Some companies act as though a pension deficit can be plugged by holding a high level of equities and hoping for the best.
“They must be clear that holding equities is not a substitute for increasing contributions.
Although many companies have increased contributions, this has been done after a full or partial contributions holiday.
In addition, risk-based premiums for the new Pension Protection Fund (PPF) are likely to be announced this month.
It is expected that these will be much higher for sub-investment grade rated companies with large pension deficits than for firms with stronger balance sheets.
Standard Life has increased exposure to risk assets in three out of five funds in its Active Plus and Passive Plus workplace pension ranges.
Some 48% of employers are unaware of the services or help they offer to members of their defined contribution (DC) schemes, according to Aon.
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