FTSE 100 pensions 'back in red'

The credit crunch is among the reasons for the swing

Pension funds of firms listed in the FTSE 100 stock index are back in the red after their biggest annual swing in funding levels since 2002.

Actuarial group Lane Clark & Peacock (LCP) found that the pension funds had a net deficit of £41bn in mid-July.

This compared with a £12bn surplus in mid-July 2007, which had been the first surplus for five years.

But the report said that the deficit could have been far worse but for firms re-stocking their pension schemes.

'Volatility'

The actuaries said that the past year had been one of the most remarkable in the 15 years in which they had been producing their annual report.

"Not only have we had fears of rising inflation, which has driven up the liabilities of pension funds and the amounts companies need to hold, but the stock markets have been volatile, and recent falls have reduced the value of the assets," said Bob Scott, a senior partner at LCP.

Last year's 'surplus' lulled people into a false sense of security Dr Ros Altmann, Pensions expert

The position could have been worse, but for these companies pumping nearly £40bn into their pension schemes over the past three years and taking some steps to reduce risks.

The analysis by LCP suggests that the pension schemes of big firms quoted on the stock market are in an unhealthier position than final salary schemes generally.

Each month the Pension Protection Fund publishes an analysis of their financial position of nearly all 7,783 such schemes in the UK, which are mainly in the private sector.

In June they had a collective surplus of just £8bn, down sharply from £53bn at the end of May and far worse than the position a year ago when the schemes enjoyed a surplus of £130bn between them.

The PPF said 71% of schemes were in deficit while 29% were in surplus.

Warning

Mr Scott said that the brief period of surplus until early 2008 had allowed some companies to take the opportunity to cut down on their pension risks, by offloading their schemes or investing less in shares.

But he was keen to give a warning about the future for pension funds.

"No sooner have companies breathed a sigh of relief about returning to surplus but they are back to multi-billion pound deficits," he said.

"With a possible recession looming and the threat of further regulatory intervention, the outlook for continuing defined benefit provision seems rather bleak."

Dr Ros Altmann, a former government adviser on pensions, commented that the LCP report was worrying reading.

"Last year's 'surplus' lulled people into a false sense of security but was probably an illusion," she said.

"The research shows pension contributions fell from £13.4bn to £13.1bn over the year and suggests that most companies have not done much to reduce their pension risks.

"It is inevitable that employers will keep on closing schemes to both new and existing members, especially in the face of so much uncertainty around the funding and costs," she added.