FTSE 100 pension deficits improve by £29 billion

The total deficit of the FTSE 100 pension schemes has improved by £29 billion, according to research from Pension Capital Strategies (PCS).

The latest quarterly FTSE 100 report found that the total deficit amounted to 28 billion at 31 December 2010, down from £57 billion 12 months ago.

The report also found that despite a reduction in deficits and an increase of almost 200% in deficit funding contributions, ongoing defined benefit (DB) pension provision has fallen by 15% over the last 12 months.

The report found that total deficit funding last year amounted to £12.1 billion, up from £4.2 billion to previous year.

According to PCS, 2011 will be the year that the majority of DB schemes will be closed.

Despite the deficit reduction only six of the FTSE 100 have schemes in surplus and almost 10% have pension liabilities that are greater than the size of the company.

For British Airways and BT, total disclosed pension liabilities are more than treble their equity market value.

In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies rose from £377 billion to £439 billion.

A total of 14 companies have disclosed pension liabilities of more than £10 billion, the largest of which is BT with disclosed pension liabilities of £42 billion.

There are 27 companies that have disclosed pension liabilities of less than £100 million, of which 15 have no DB liabilities whatsoever.

Charles Cowling, managing director, PCS, commented: “Three important patterns are clearly evident in our report. Firstly, FTSE 100 companies are prepared to inject significant funding into their pension schemes as the economy continues its recovery.

“Secondly, despite this willingness to increase funding contributions, ongoing DB provision continues to fall rapidly and, very sadly, it appears that 2011 will be the year which sees the majority of schemes close.

“Thirdly, the equity market rally has not precipitated a swing back into equities, although it has halted the move towards bonds. We predict that this will be temporary and the move towards bonds will again accelerate in 2011 as more schemes look to close down risk.”

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