UK - More than a third of FTSE100 firms cannot plug their pension scheme deficits using current discretionary cash flow, KPMG warns.
In its latest Pensions Repayment Monitor report, the accountancy firm said almost one third of blue chip companies are in this position despite more than £11bn ($17bn) being spent on pension deficits in 2009.
It said this represents the highest level in the survey's five-year history, with the previous high being 22% of the UK's biggest firms that could not pay off their pension deficit within the foreseeable future.
It said there is now a blue chip divide between those companies that can pay off their pension deficits within a short timeframe using free cash flow, and those unable to do so without stemming business growth.
Alternatively, if dividends and capital expenditure were added back to discretionary cash flow, about 97% of FTSE100 companies could fully repair their pension deficits within three years, KPMG said.
However, the auditor said such a move could be "to the detriment of the businesses' well-being".
KPMG pensions partner Mike Smedley added: "At first sight these figures look alarming, but they mainly reflect the consequences of the economic downturn on companies' profits and cash flow.
"The key message to sponsoring companies, pension fund trustees and regulators is to maintain a long-term view and avoid knee-jerk reactions. The most important thing in securing the future of pension provision is to secure the future of the business, not the other way round."
The report also found the recent government change in the way pension rises are calculated - using CPI rather than RPI - will reduce deficits but have limited impact on the ability of companies to pay off deficits.
Smedley said: "Our analysis shows that improving companies' profits and cash flow has a far greater impact on businesses' ability to finance deficits than moderate changes to past benefits.
"It will therefore be important for trustees to support the competitiveness of their employer and its ability to access finance. This will include recognising that capital providers are essential to business success and the right balance needs to be struck around pension funding."
The study also revealed only three companies showed an accounting surplus last year, compared with 12 in 2008 and 21 in 2007.
KPMG also found companies are now spending more on deficits than funding pensions for current staff with nearly £2 out of every £3 spent on DB schemes in 2009 going towards deficit reduction.
At the same time, total employer contributions paid to DB schemes increased to £17.8bn in 2009 compared with £14bn in 2008, as demands to fund deficits for past benefits increased.
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