UK - Companies will have to put £10bn a year into schemes over the next decade to plug their growing FRS17 deficits, Watson Wyatt claims.
Watson Wyatt’s research – which covered the consultant’s client list and all the companies in the FTSE100 – found that the combined FRS17 deficit for all firms ballooned from £10bn at the end of 2001, to £130bn at the end of 2002.
Watson Wyatt partner Robert Hails said that even when a “more reasonable” approach to funding was used, companies still had an aggregate shortfall of £65bn.
He added: “If the value of equities doesn’t recover in the short-to-medium term, then the additional contributions that companies will have to make could be up to £10bn a year over the next 10 years.”
Lane Clark & Peacock partner Alex Waite thought that the growing deficit would force more companies into either closing their defined benefit schemes or cutting benefits.
“The question you’ve got to ask is are companies going to actually fund that £130bn hole or is it going to turn out to be that members are not going to get their benefits.”
Separate research carried out by actuarial consultants and pensions specialists, UBSL calculated that FTSE100 companies’ pension schemes alone have lost £68bn in value since the start of 2002 taking their overall pension fund deficits at December 31 to £72bn.
UBSL director Rob Dales said worst fears of many FTSE100 finance directors were realised after they saw their pension shortfalls grow by £13bn in the last quarter of 2002
*Worldwide institutional pension fund assets have fallen for the third consecutive year, Watson Wyatt says.
Total scheme assets last year fell 12% or US$1.4trn (£871.3bn) to US$10.7trn – levels last seen in 1997.
Watson Wyatt global head of investment practice Roger Urwin said: “Although it is anticipated this trend is not likely to continue, most funds face difficult decisions and will turn to either higher contributions, changed investment strategies or revised benefits or a combination to restore balance sheet strength.”
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