UK – Listed companies’ cash contributions to UK pension funds have nearly doubled in two years to £13bn but at least 20 companies have more than a 40% deficit.
The survey by Aon Consulting revealed the total deficit of the 200 largest defined benefit pension schemes of FTSE-listed companies was about £50bn, down from nearly £80bn at the nadir of the stock market falls from 2000 to 2003, and could be closed by a 1% rise in bond yields or 30% improvement in the stockmarkets. The improvement was mainly a result of the improved equity returns in the last 12 months but was also a reflection of the increased cash contributions made by the companies into the pension funds, Aon said.
Andrew Claringbold, principal and actuary at Aon, said the cash contributions were £7.5bn in the 2002 financial reporting season, which showed the 2001 calendar year results, compared to £13bn in the 2004 reporting season.
He said: “The main improvement of pension fund deficits has come from the markets but cash contributions have risen and could stay at this level for the next few years. The bad news is already out there in terms of the impact on profitability.”
Aon also found that under the FRS17 accounting rules, 75% of the 200 companies surveyed had a pension fund deficit of less than two years’ profits. For these 150 companies the average deficit was £280m compared to average profit of £720m, and 100 companies could meet the deficit within 10 months.
Claringbold said: “While UK companies remain subject to ongoing financial difficulties due to their pension scheme, for most businesses they remain at a level that is manageable through additional contributions over time. For members, the figures demonstrate that pension schemes are perhaps more secure than they have been led to believe.”
But he said 10%, 20, of the companies had less than 60% funding cover, which tended to be the smaller companies. The Occupational Pensions Regulatory Authority (Opra) said it could look to find out which companies with the least funding cover were, although it probably knew most of them already despite having constraints on collecting this information.