UK - A growing number of the largest UK pension schemes are underfunded, according to the results of an annual study of company accounts by Bacon & Woodrow.
The study of companies in the FTSE 100 reveals that a wide variation in the funding levels of pension schemes exists, and 17 schemes report a funding level of less than 100% compared to only seven last year. In one instance, the size of the deficit is nearly £170m.
More positively, 83 schemes report funding levels in excess of 100%, including 20 reporting a funding level of 125% or more, up from 14 schemes last year. With regard to pension scheme costs, the study reveals a slight decrease in costs compared to last year. The highest reported scheme cost is 14.7%, down from 19.5% last year. The mean pension cost is 4.1% which, last year, was 5%.
Commenting on the level of underfunding, Brian Wilson, head of benefits research at Bacon & Woodrow, said: Falling interest rates and increasing longevity are hitting defined benefit pension schemes hard, and low or negative returns on pension fund assets are compounding the problem.
As the new accounting standard FRS17 is introduced over the next three years, companies will have to show not only up-to-date figures but also figures which have been calculated using a common method and market-based assumptions.
“It's likely that future years' disclosures will paint a more negative picture of pension scheme funding than we're seeing this year.”
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