Almost a third (32%) of FTSE 100 companies are unable to pay pension fund deficits from current discretionary cash flow, according to KPMG’s Pensions Repayment Monitor.
The survey shows companies are spending more on deficits than funding pensions for current staff, with £2 out of every £3 in 2009 being spent on deficit reduction.
As demands to fund deficits increased, total employer contributions paid to defined benefit schemes increased from £14 billion in 2008 to £17.8 billion in 2009.
Despite over £11 billion being spent on pensions deficits last year, this is the highest level of companies that could not pay off their pension shortfall in the five years the survey has been running.
Blue chip companies are now divided into those that could pay off their deficits in a very short timeframe from free cash flow, and those who cannot pay off their deficits within any reasonable timeframe without sacrificing business growth.
If dividends and capital expenditure were to be added to discretionary cash flow, 97% of the FTSE 100 could pay their pensions deficits in three years.
The survey found 46% of the FTSE 100 would be able to pay off pensions deficits from discretionary cash flow in one year, and 63% in three years, compared to 62% and 75% respectively in 2008.
However, KPMG warned this would be at the detriment of the business, as dividends and capital expenditure are crucial to the supply of capital and growth of the business.
Only three companies now show an accounting surplus compared with 12 in 2008 and 21 in 2007.
Mike Smedley, pensions partner at KPMG, said: “At first sight, these figures look alarming. But they mainly reflect the consequences of the economic downturn on companies’ profits and cash flow.
“The key message to sponsoring companies, pension fund trustees and regulators is to maintain a long-term view and avoid knee-jerk reactions.
"The most important thing in securing the future of pension provision is to secure the future of the business, not the other way round.”
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