UK - Nearly a third of FTSE 100 companies are paying “insufficient attention” to their pension risks, according to LCP, the company formerly known as Lane Clark & Peacock.
In its 17th annual Accounting for Pensions report, LCP said 32 companies in the FTSE100 neither made reference to pension risk nor reported having taken any steps to reduce it in their 2009 accounts.
Worse still, four of those companies have liabilities worth more than 20% of their market capitalisation.
LCP said it was “surprising” so companies with material defined benefit (DB) schemes had made no reference to pension risks at all, particularly considering the “inherent riskiness” of the schemes.
The European actuarial consultant also noted a massive £17.5bn (€21.1bn) increase in contributions by FTSE100 companies to their DB schemes last year - a record amount and a 50% increase on the previous year.
Royal Dutch Shell made the largest contribution of £3.3bn, a £2.5bn year-on-year increase, while Lloyds Banking Group, Royal Bank of Scotland and Unilever also paid more than £1bn each into their respective DB schemes.
Eight companies - BAE Systems, British Airways, Invensys, Lloyds Banking Group, Morrisons, Rolls Royce, Serco and Wolseley - all paid more into their schemes than they did to shareholders in dividends, LCP added.
While the record amount of contributions made last year nearly halved the aggregate FTSE100 pension deficit from £96bn to £51bn, LCP warned of the impact on companies’ balance sheets and shareholders.
Bob Scott, a partner at LCP and co-author of the report, said: “In the wake of the financial crisis, pension scheme trustees have sought more money from their sponsoring companies to fund soaring pension deficits, leading to a record level of contributions last year.
“While this is reassuring for scheme members, such increases in contributions reduce the scope for companies to pay dividends and to invest in their businesses.”
Scott predicted the trend of companies modifying their schemes to cut pension costs would increase in 2012, when it will be compulsory for companies to enroll all employees in a scheme.
Meanwhile, the LCP report also highlighted of number of other issues that stepped up the pressure on pension schemes’ liabilities last year.
For those companies reporting as at 31 December 2009, higher inflation assumptions increased liabilities by more than £12bn, while FTSE100 companies have again upped their assumptions of how long pension scheme members will live, adding another £9bn to liabilities as at the end of June.
Scott said pension policy in the private sector was now driven “almost exclusively” by financial considerations.
“However,” he said, “such considerations largely ignore the social consequences of having large numbers of people accruing inadequate retirement provision.”
He added that the benefits emerging from defined contribution schemes set up to replace DB schemes in recent years were unlikely to be adequate.