Pension Scheme Deficits - Latest Monthly Update

 

1st September 2010, London: Pension Capital Strategies Limited (PCS) has updated its monthly index showing the funding position of all UK private sector defined benefit (DB) pension schemes under the standard accounting measure (IAS19 / FRS17) used in company reports and accounts.

As at 31 August 2010, PCS estimates the total DB pension scheme funding position as follows:

At 31 August 2010	Assets	Liabilities	Surplus / (Deficit)	Funding Level
FTSE100 Companies	£385bn	£458bn	(£73bn)	84%
FTSE350 Companies	£444bn	£530bn	(£86bn)	84%
All UK Private Sector Pension Schemes	£1,002bn	£1,247bn	(£245bn)	80%

For comparison, the corresponding figures as at 31 August 2009 are as follows:

At 31 August 2009	Assets	Liabilities	Surplus / (Deficit)	Funding Level
FTSE100 Companies	£378bn	£462bn	(£84bn)	82%
FTSE350 Companies	£435bn	£529bn	(£94bn)	82%
All UK Private Sector Pension Schemes	£928bn	£1,141bn	(£213bn)	81%

David Bor, Consultant and Actuary at Pension Capital Strategies, comments: "Earlier this week, a survey from the Association of Consulting Actuaries suggested that four in 10 companies would reduce future scheme benefits to pay the additional costs associated with deficits. Whilst companies certainly need to take difficult decisions regarding pension scheme funding over the coming years, our research shows, across the UK as a whole, the situation is showing few signs of sustained improvement.

"The total deficit for all UK pension schemes stands at £245bn, an increase of more than £30bn compared with the same time last year. However the schemes of the largest companies - those in the FTSE100 have shown an improvement in deficit levels - a decline of £11bn - and funding levels in these schemes have also made strides in the right direction.

"For the smaller schemes - those showing increased deficit - the ray of light may come in the form of the Government's recent announcement that it plans to change all RPI linked* increases to benefits to become CPI linked*. This could have a huge impact on pension schemes. With expectations for CPI increases being 0.5% per annum below RPI increases this would also have a big impact on the pensions that would be paid. Overall we believe this change could reduce pension liabilities by 5% to 10%."

 

Note:

*

The RPI is the Retail Prices Index; the CPI is the Consumer Prices Index.  There are two main differences in these indices. 

One is in their mathematical construction which means over time that the RPI is greater than the CPI.  The other major difference is the inclusion of certain items particularly housing costs in the RPI which are excluded from the CPI.  Again over time the expectation is that these will mean that RPI increases are greater than CPI increases.       

 

--ENDS--

 

Enquiries:

David Bor                         0161 242 5329

Paul Dransfield                    020 7528 4933

 

Notes to Editors:

About Pension Capital Strategies Limited

Pension Capital Strategies Limited (PCS) was established in 2006 to help companies to manage their Defined Benefit pension obligations, offering advice on managing scheme assets and liabilities, on communication with trustees and on finding the right funding solutions.

A subsidiary of the Jardine Lloyd Thompson Group, PCS can draw upon skills and experience in the areas of corporate finance, tax, capital markets, asset management, actuarial and general pension regulation and practice to provide strategic advice and practical answers.

http://www.pensionstrategies.co.uk/