Defined benefit deficits grow despite record company contributions

The aggregate accounting deficit for large multi-national organisations stood at €160 billion (£135 billion) at the end of September 2010, up from €150 billion at the end of last year, according to Lane Clark and Peacock’s (LCP) European Pensions Briefing 2010.

The increase comes despite companies pumping a record €40 billion into their pension plans last year, a 60% rise from €25 billion in 2008, in an attempt to bring them back into balance.

Although 2010 has been a good year for investment returns, the gains and deficit contributions have been more than offset by the impact of falling corporate bond yields which are used to value pension liabilities for accounting purposes.

The survey also reveals significant deficits for a number of companies, with several in the range €5-10 billion. As a proportion of market capitalisation, the companies with the biggest pension deficits were Axa (18%), Boeing (16%) and Daimler (15%).

In survey also found that payments into defined contribution pension schemes increased by an average of 8% in 2009, reflecting the trend to move away from defined benefit plans.

Shaun Southern, partner and head of LCP’s international practice, said: “Over the past 12 months, global pension plans have been hit hard by the fallout from the credit crisis and subsequent economic challenges. As deficits continue to climb, the corporate risks of defined benefit pension plans have never been greater.”

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