UK - FTSE 100 companies contributed an extra £5.4bn (€6.8bn) of funding towards reducing pension deficits over the last financial year, according to research from Pension Capital Strategies (PCS).

The firm's quarterly report on the pension schemes of the FTSE 100 companies, in association with Numis Securities, revealed the total funding position of the FTSE 100 pension schemes had improved by £56bn over the last year to a surplus of £36bn at March 31 2008.

PCS pointed out the improvement in the funding of pension schemes is despite the "worst ever start to a year for share prices for the FTSE 100", as the first quarter of 2008 was "dreadful" for shareholders.

"Yet a bizarre combination of circumstances meant it was a great quarter for FTSE 100 pension schemes," said Charles Cowling, managing director of PCS.

However, he said "not only have the FTSE 100 pension schemes moved into significant surplus, but more significantly, we estimate the total buyout solvency deficit has improved by £160bn from a deficit of £230bn 12 months ago down to just £70bn at 31 March 2008".

That said, PCS suggested the level of contributions to pension schemes is levelling out, as the amount paid into the FTSE 100 schemes in the year to March 2008 was £13.1bn, the same as the previous year.

Although this represents an additional £5.4bn of funding towards deficits - as the actual cost of benefits was £7.7bn - PCS warned "as funding levels improve we are seeing evidence of a slowing down of additional funding". 

Additional research from the quarterly report showed 33 FTSE 100 companies disclosed a pension surplus in their most recent annual report, although PCS claimed this would have increased to 70 if the year-end had been March 31 2008.

As a result, Cowling suggested the first FTSE 100 pension buyouts announced this month - between Lonmin and Paternoster, and Friends Provident and Norwich Union - will be the "first of many" as companies take advantage of the current "benign conditions".

Charles Cowling added as The Pensions Regulator (TPR) continues to encourage trustees to "take an ever tougher line" and accounting standards on pension schemes "become ever more unfavourable for companies", PCS believes the "attractions of a buyout, giving a once and for all solution for the pension scheme, will grow inexorably".

Although the report revealed in the last year the total disclosed liabilities of the FTSE 100 companies fell slightly by £5bn to £389bn, it highlighted 13 companies reported liabilities of more than £10bn - the largest of which was BT with liabilities of £39bn - while six companies have liabilities which are bigger than the total equity value of their company.

The report showed British Airways has the most significant pension scheme liability overall - 542% of the firm's equity market value - as liabilities amount to £14.6bn yet the market value of the company is just £2.7bn.

In addition, the BA pension scheme also as the largest deficit as a percentage of the company's value, at 48%, although BAE systems has a 12% deficit and liabilities of 101% of the company's equity market value.

However, BT and Royal & Sun Alliance also have significant pension burdens, with liabilities that are 222% and 122% of the equity market value respectively, although the research added that seven FTSE 100 companies have no DB liabilities at all.

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