Aggregate FTSE 250 pension deficit hits £12bn
UK - The total deficit of defined benefit (DB) pension schemes run by companies listed on the FTSE 250 index doubled to £12bn (€13.5bn) over the 12 months to the end of June, research from Pension Capital Strategies (PCS) has suggested.
Figures from the report into the FTSE 250 and their pension disclosures revealed that funding position of schemes - both in the UK and overseas - deteriorated over the year, although the aggregate level of liabilities disclosed in annual accounts actually slipped from £57bn to £55bn.
The report, published in association with Cazanove, also warned if pension liabilities were measured on a risk-free basis - as proposed by the UK Accounting Standard Board (ASB) - then the total value of liabilities would increase to £80bn and the aggregate deficit more than double to £30bn.
The findings - based on IAS19 figures disclosed in the companies' latest annual accounts - also highlighted a continued switch by companies from equities to bonds, with the average pension scheme asset allocation to bonds rising from 42% to 49%.
PCS revealed 38 firms increased their bond allocations by more than 10%, with Melrose Plc, which had assets of £811m and a deficit of £129m, making the largest switch as it increased its bond investments by 55% from 3% in 2008. As a result, the report noted, 52 companies in the FTSE 250 now have more than 50% of their pension schemes invested in bonds.
Despite the more conservative investment strategies, PCS revealed 27 companies disclosed they have pension liabilities greater than the company's market value, and in the case of GKN - the technology and engineering firm - its liabilities of £2.8bn are "more than treble its equity market value", which stood at £837m at the end of 2008.
In addition, 15 companies have liabilities of more than £1bn, and 117 companies disclosed deficits in their DB schemes, although as this is based on the latest annual accounts - ranging from end of June 2008 to May 2009 - the report estimated "only around 10 companies would disclose a surplus if they had a year-end of 30 June 2009".
The research said a number of companies have tried to limit pension liabilities through closing the DB scheme but claimed this has had "little impact", although recent problems in the credit markets - resulting in high spreads on corporate bonds - has helped stifle growth by offsetting the effects of rising inflation and increased longevity.
At the end of June 2009, PCS revealed, only 92 companies provided DB benefits to more than just a few employees, and of these only 20 - less than 10% of the FTSE 250 index - are providing DB scheme benefits to a "significant number of employees".
PCS noted that nearly half of the FTSE 250 do not have a DB scheme, because "companies are reacting to the combination of difficult economic conditions, rising pension costs and increasingly aggressive regulations by closing pension schemes to future and even current employees".
Other findings from the report showed the best funded pension scheme in the FTSE 250 was Henderson Group with a surplus of £148m and a funding level of 158%, while the worst - not including Rank Group which completed a buyout in 2008 - was Ferrexpo with a funding level of 6%, and Aegis Group which was 47% funded.
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