UK – Mercer Human Resource Consulting has estimated that, taking everything into account, the total combined pension fund deficits of UK companies could be up to 300 million pounds (423 billion euros).
The consulting firm said that it estimates that the aggregate pension deficit under the FRS17 accounting standard for companies in the FTSE350 index is about 90 billion pounds. It said this figure includes up to 15 billion pounds of overseas liabilities.
But it estimates that the figures can be extrapolated for all UK firms to give an FRS17 deficit of around 150 billion pounds for UK schemes as a whole.
“This becomes 300 billion pounds if consideration is given to the cost of winding up schemes by securing insurance policies, or converting to insurance companies in the case of the largest schemes,” Mercer said.
"We wait to hear, with interest, which of these numbers will be adopted by the government to determine levies for the forthcoming Pension Protection Fund," said Mercer’s European partner Tim Keogh.
Mercer used data for all the 147 companies in the FTSE350 index with December 31 year-ends and extrapolated the figures from there.
Mercer said that four in 10 of he UK’s largest companies retain final salary schemes that are open to new members – down from nearly two-thirds a year ago. Mercer studied the most recent annual reports of FTSE 350 companies with end-2002 year-ends.
It said that many companies now offer a combination of both final salary and money purchase pensions and added that only 25% have not yet opened some form of money purchase scheme, compared to 45% last year.
"Undeniably, there has been a huge shift in the nature of pension provision in recent years," said Keogh. "But it would be an oversimplification to say that final salary schemes are dying out."
"A striking development in recent months is the number of employers re-committing to final salary schemes, but rebalancing the costs. Many companies are changing the cost structure of their schemes, such as increasing employee contributions or adjusting the rate at which benefits can be built up," he added.
"Significant numbers of employers have sought to cut costs by closing their final salary schemes to new entrants. Such measures will help reduce the cost of future liabilities but will have little effect on current deficits," said Mr Keogh.
It added that the median funding level has fallen from 91% to 74%, under FRS17.