UK – Mercer Human Resource Consulting says pension scheme deficits at companies in the FTSE350 index fell to 64 billion pounds (95.9 billion euros) from 74 billion pounds over 2003.
“Findings from an analysis of the latest FTSE350 annual reports with December 31 2003 year-ends showed that deficits fell from 74 billion pounds to 64 billion pounds over the year,” Mercer said.
“It’s striking that double digit asset returns over 2003 have been matched by a double digit growth in liabilities,” said Tim Keogh, European partner at Mercer. “Liabilities have grown due to a downward pressure on bond yields used to measure liabilities, and increased allowances for longevity.”
The research reflects an increasing recognition that deficits must be addressed. The median contribution paid by companies exceeded the value of new benefits accrued by 18% while 18% of employers more than doubled their pension fund contributions.
Keogh said: “More companies now realise that deficits will not go away by themselves. They are gritting their teeth and recognising the need to increase contributions.”
He continued: “It would be great if equity markets suddenly boomed again or if bond markets offered the higher long-term yields that would make deficits disappear. But sensible financial planning needs to be based on more than hope, and the markets are likely to address only part of the problem.”
Mercer said the research reflects the increasing “polarisation” of pension scheme deficits. “On average, deficits represent only three percent of market capitalisation, but in one in ten companies the figure is 20% or more.”