EUROPE - Pension scheme deficits have significantly increased over the last year and will continue to worsen, according to Barclays Capital.
In its first European Equity Research report on the pension outlook, the bank said that pension scheme deficits have substantially increased due to a combination of depressed asset values and rising pension obligations.
It said that despite the recent equity rallies, any benefits have been more than offset by the quantitative easing program, as bond yields form a major part in pension obligation calculations.
However, as companies are only required to report full pensions data on an annual basis, there may be a significant difference between the values reported in companies' annual accounts and up-to-date values.
The report also highlighted that a company's timing of reporting pension numbers will have a substantial impact on the reported health of the scheme. It said companies with December 2008 year-ends will have reported significantly healthier pension numbers than those reporting in March or June this year.
For example, there was a spike in corporate bond yields and a drop in long-term inflation in December, which meant many companies reported relatively healthy pension numbers in this month.
In a screening of FTSE 350 companies, taking into account pre-tax deficit values and pension obligation scaled by market capitalisation, Barclays' research shows that DS Smith has the largest pre-tax deficit at 54.5%, with a market obligation of 212.8%, at the end of April this year.
The same screening of the Dow Jones Stoxx ex UK shows that the Bank of Ireland has the largest pre-tax deficit of 72.7% and an obligation of 221.4%.
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