FTSE 100 pension scheme funding deficits spiral to more than £300bn

FTSE 100 pension schemes need more than £300bn to meet funding deficits, according to business advisory firm Deloitte.This is the highest level ever required and more than double the total estimated deficit of £130bn, which was predicted at the start of the year.

Companies are facing demands for huge contributions to their pension schemes to repay the losses made on investments during the financial turmoil.

For some businesses the current rate of cash contributions to pension funds has reached unsustainable levels and to compensate they are trying to shift capital and assets from their balance sheet to their pension fund.

Andrew Mewis, head of pensions at Deloitte in the Midlands, said: “If pension funds had to rely purely on cash contributions from companies it could, at the current rate, take more than 50 years to clear the aggregate pensions deficit.

“This position will not be acceptable to pension plan trustees but significant cash contribution increases would be unaffordable for companies.

“The solution is for companies to transfer the value of their assets to the pension scheme.”

Until recently, companies reduced the cost of their final salary pension schemes by reducing the benefits the schemes provide or by moving to cheaper defined contribution schemes for new employees.

Many companies are now closing their defined benefit pension schemes to all employees but closure will not help reduce the large pension deficits and accompanying cash demands.

“Closing the defined pension scheme to all employees is a big step which many companies have previously shied away from,” said Mr Mewis.

“However, with the current unprecedented funding levels in pension schemes and with companies being forced to cut costs to remain afloat, we expect to see many more pension schemes closing.”

ENDS

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