UK – Increasing numbers of the UK’s largest pension funds are finding themselves under-funded, according to the latest annual study of company accounts to be published next week by consultant Bacon & Woodrow.

The study looks at companies listed in the FTSE 100 index and reveals that a wide variation exists in funding levels between pension funds, with 17 reporting funding levels down by 100% on last year compared to only 7 a year ago.
One scheme reports a deficit of nearly £170m (€268m), with two companies saying they will have to make extra scheme payments to cut the loss.

On a cheerier note, 83 schemes reported funding levels over 100%, in some cases as high as 125%.

In terms of pension scheme costs, the survey records a slight decrease since last year, with the highest reported cost coming out at 14.7% against 19.5% last year. The average pension cost is 4.1%, down from 5% last year.

Brian Wilson, head of benefits research at Bacon & Woodrow comments: “Falling interest rates and increasing longevity are hitting defined benefit pension schemes hard, and low or negative returns on pension fund assets are compounding the problem.”

Wilson says that current accounting procedures also do not oblige schemes to show the funding level as of balance sheet date, which can leads to diverse assumptions being made about funding positions.
However, this is about to change with the introduction of the new FRS17 standard, which means companies will have to show up to date positions using a common calculation method.