Pension schemes’ surplus on the increase

The final salary pension plans of FTSE 100 companies are expected to have reached an aggregate surplus of £15bn by  the end of 2007.

According to Deloitte, it is also predicted that the FTSE 100 surplus will have have risen to £30bn by the end of 2008.

The main reasons for the surplus in 2007 include investment returns of 3.5% over the year as well as increases in contributions from employers in recent years as they opted to improve funding levels. In addition the price of company bonds, which are used to value company pension liabilities, have fallen reducing the assessed value of liabilities.

The effect of new pension funding regulations introduced in 2005 has also had an impact on schemes because companies are having to meet higher funding targets.

If the surpluses continue to increase over 2008, Deloitte estimates that more pensions buy-outs similar to that undertaken by Emap, which moved assets and liabilities to Paternoster in November 2007, will take place.

Pensions partner at Deloitte, David Robbins, said: “Over 2008 companies will be looking to solve their pensions problems for good. Options that include transferring pensions schemes to new specialist pension buy-out companies are beginning to look viable.”