UK – The pension deficit of companies on the FTSE 100 index has fallen 22% to 49 billion pounds (70.7 billion euros), according to new research from Dresdner Kleinwort Wasserstein.

“The FTSE 100 deficit has fallen by 22% (as last reported) from 62.4 billion pounds to DrKW’s estimated 49.0 billion pounds,” said DrKW European and UK equity strategist Karen Olney in a research note.

Last month, actuaries Lane Clark & Peacock put the combined pension deficit of the UK’s top companies at 55 billion pounds.

Olney says that the benchmark FTSE 100 index would have to rise almost 35% to clear the pension deficit. “Based on our analysis the FTSE 100 would need to rise to a level of 5,678 (holding bond yields constant) to clear out the deficit.” The index closed yesterday at 4,236.

DrKW has identified 14 companies where dividends are at risk because of pensions deficits. They are: BT, Rolls-Royce, BAE Systems, GKN, Invensys, Granada, Whitbread, Centrica, ICI, Allied Domecq, Rexam, Marks & Spencer, Royal & Sun and National Grid. It said that BT and Rolls-Royce were particularly at risk.

“We have seen significant outperformance from the more cyclical sectors,” Olney concludes. "It is very difficult to say how much of this is from investors assuming away the entire pension problem or entirely due to a better business outlook.”

“In some cases, whilst pensions are not everything, it could be the market has overreacted, or underreacted to the change in pension fortunes.”