UK- The announcement by the £40m pension fund of UK-based department store operator James Beattie that poor management of its assets and falling equity markets has hit its surplus for over 60% will soon be followed by similar announcements from other funds according to the finance director Bill Kelly.
Beattie’s surplus has fallen from 129% to 111%, a move that means the business will have to make contributions of around £400,000 for the year ending January 31.
“There are many who have not had actuarial evaluations done yet and there will be some in far worse positions than us. We had a decrease in surplus from 129% to 111%. I’m sure there are people hovering around the 100 level and below who are dreading their latest valuation,” says Kelly.
A recent article based on old valuations calculated that 17 of the FTSE 100 company schemes have deficits on their schemes. “with valuations coming up this year or next year, this number has got to increase,” he says.
Implementation of the accounting standard FRS 17 whereby assets and liabilities are reported on the balance sheet at market value will exacerbate the problem. “It will be a major corporate issue for the next two years and not one to be ignored. There’s a double whammy effect coming along.”
Most pension funds opt for valuations every three years and those with significant equity holdings that have imminent valuations are likely to be in for a shock. “If you think about the equity market declines in the two years to spring 2001, there are quite a few funds that have not even recognised them yet.”
Beattie has already closed the fund to new entrants and cut its equity/ fixed income ratio from 80/20 to 70/30 in a bid to safeguard to the surplus. Kelly declined to name the underperforming manager only to say that the fund has since appointed Legal & General for fixed interest, HSBC for UK equities and Henderson for overseas equities and bonds.