Pensions deficit tops £55bn for FTSE 100 companies

The combined pension scheme deficit of FTSE 100 listed companies has soared to over £55 billion in the year to July 2003, according to a report published today by actuarial consulting firm Lane Clark & Peacock (LCP).

The report says that the estimated deficit equates to 6% of the total market capitalisation of the FTSE 100.

Rolls-Royce, ICI and Royal & SunAlliance are among seven companies identified in the report as looking exposed to the "volatile movement in equities" once the FRS17 pension accounting rules are adopted.

The report, based on LCP’s analysis of pension cost disclosures in FTSE 100 companies’ accounts, reveals that as of mid-July 2003, for every £100 of FRS17 pension liability, LCP estimates that the pension schemes held, on average, assets of only £80.

Contributions paid last year fell short of the FRS17 value of pension benefits awarded. Among the companies covered by the analysis, employees earned benefits of value £4.2 billion under FRS17, while employer contributions totalled only £3.6 billion – a shortfall of £600 million.

Also, of the 90 FTSE 100 companies with UK defined benefit pension schemes, 77 disclosed a deficit at their respective 2002 accounting year-ends. Of the 13 companies showing a surplus in 2002, 11 have already reported in 2003 and, of these, only Boots still shows a surplus.

Bob Scott, partner at LCP, said: “Companies have suffered a double whammy. Equity falls have eroded the market values of scheme assets, whilst an increase in the value of corporate bonds – against which the FRS17 value of scheme benefits is measured – has resulted in a rise in scheme liabilities.”

Among the companies covered by the report, BP showed the largest deterioration in the difference between its schemes’ assets and FRS17 liabilities. Over the year, the BP pension schemes moved from an FRS17 surplus of £1.5 billion to a deficit of £3.4 billion. BP has recently announced its intention to make substantial contributions to clear their pension deficits. Over a year of falling equity markets, Northern Rock stood out as the only company analysed whose FRS17 deficit reduced, albeit marginally.

(GMcG)