ICI's £1bn pension shock

Chemicals giant ICI is set to admit it has a pension liability of as much as £1bn.

Chemicals giant ICI is set to admit it has a pension liability of as much as £1bn.

The company is reporting final-year results on Thursday and should disclose the figure under the FRS 17 accounting rule. It faces an actuarial review in March, so it will probably have to increase its pension contributions the following year to top up the fund.

"The UK stock market was down around 25 per cent during 2002. This implies there is a further pension hole of circa £500m, and that ICI's reported gross deficit under FRS 17 could be over £1bn," says research from the stockbroker UBS Warburg.

The deficit could now be even higher. The figure to be disclosed this week was measured at the end of last year. But the stock market fell a further 10 per cent in January.

ICI has cut its final salary pension scheme, a move that led to protests from workers. But the problems are not limited to ICI. The actuary Watson Wyatt predicts UK plc has a total deficit of £130bn. "ICI's results themselves are unlikely to contain any surprises," says research from Dresdner Kleinwort Wasserstein. "What analysts will focus on is the pension issue, in particular the potential impact of FRS 17 and any restatement of the US pension plan."

ICI's deficit comes despite a lucky decision two years ago to move many of its funds into bonds, rather than shares. If it had not done this, the liability would be worse.

Warburg estimates ICI's 2002 sales will fall 5 per cent to £6.1bn and pre-tax profits by 3 per cent to £388m. It was forced to launch a £800m rights issue earlier this year to pay down debt.