Another month, another theory about pensions. Back in April we brought news that according to Watson Wyatt, the pension deficit of the UK’s largest companies had reduced by 25% since the beginning of March. Okay, that was before the nasty market correction in May, so you would assume the that once equities started falling, the pension deficit would start to rise again.
Not so, said Deloitte last month. When pension funds are valued, the number crunchers take into account the expected income from pensions when their members retire. Thanks to the recent rises in the rate of interest, the valuation have therefore risen, and according to Deloitte, “…the total deficit for final pension plans for FTSE 100 companies has halved since the beginning of this year.”
But now, it’s August, and that means a new theory. This time, it’s accountants Lane, Clark and Peacock. According to these esteemed pension experts, “…despite record contributions and rising stock markets, the total deficit of FTSE 100 UK defined benefit pension schemes, calculated under the international accounting standard IAS19, is estimated at £36bn, broadly the same as at this time last year…”
Lane Clark and Peacock went on to say “…the key story of the past few months has been volatility. Volatile equity and bond markets have resulted in the aggregate deficit hitting a high of £54bn in January 2006, plummeting to £29bn in April, before climbing to its current level.”
“At the same time reported company contributions have risen to record levels at £12.1bn for 2005, up 12 per cent on the previous year. The highest contributions were paid by HSBC (£1.3bn), Royal Dutch Shell (£702m) and GlaxoSmithKline (£673m). Eight companies paid more into their pension schemes than to their shareholders.”
Apparently, just five companies reported a pension surplus in 2005, Associated British Foods, Gallaher Group, Johnson Matthey, Old Mutual and Schroders.
Charlie Finch, consultant at LCP said: #147;The Pensions Act 2004 and associated legislation encourages companies to accelerate the funding of their pension deficits. Although the new legislation makes it more likely that pension scheme members will receive their promised benefits, the price could be more scheme closures as companies are forced to commit cash to funding their deficits instead of paying benefits for current employees. In a number of companies, directors face a difficult choice - how much cash to divert to pension schemes and where should it come from? In the short term, some may divert cash away from investment in the business to the pension scheme.#148;
For further information
LCP LAUNCHES 13th ANNUAL ACCOUNTING FOR PENSIONS SURVEY#160;#160;02 Lane, Clark and Peacock
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