FTSE 100 pension funds move in to surplus

The UK pension schemes of FTSE 100 companies moved into a fragile net surplus of £12bn in the middle of July after favourable investment returns helped to wipe out an overall deficit.

The Accounting for Pensions 2007 research from Lane Clark & Peacock (LCP), shows an improvement on 2006, when a total deficit of £36bn was recorded. The £12bn net surplus, includes surpluses of £20bn against deficits of £8bn.

LCP said the main reason for the improvement, is favourable investment returns which have contributed approximately £30bn. Higher real bond yields have contributed £10bn.

The research also showed that company contributions reached £13.4bn in 2006, up 19% from 2005.

Bob Scott, partner at LCP, said: “It is encouraging to see UK pension schemes of FTSE 100 companies report a surplus after so many years in the red. However, the surplus may not survive once companies reflect the latest mortality projections in their accounts.”

However, the research also revealed that 57% of total assets of FTSE 100 UK pension schemes are invested in equities. Scott warned: “Companies whose pension schemes remain heavily invested in equities run material investment risk and the fragility of the surplus was highlighted by recent stock market falls. UK pension schemes are not out of the woods yet.”