Pension deficit of FTSE 350 firms soars to £93bn

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The Independent Online

The combined pension fund deficits of Britain's largest 350 quoted companies increased by almost one-quarter last year, to £93bn, in spite of a rally in the UK stock market and several multibillion-pound cash injections into some of the country's biggest schemes.

According to research by Mercer Human Resource Consulting, the pension deficits of the FTSE 350 rose 24 per cent, from £75bn to £93bn last year. Total pension fund assets rose almost 17 per cent to £422bn over the year, compared with a rise in the value of the FTSE 350 index of about 9 per cent. Liabilities rose by a similar amount, with increases in the overall deficit coming as a result of insufficient company contributions, changes in mortality assumptions, and poor performance in the bond markets.

Tim Keogh, at Mercer, said: "Favourable investment performance did little to dilute the value of pension-scheme deficits in 2005. Bond markets rose at the same time as equity markets, causing yields to drop and liabilities to grow. The need to allow for increased longevity has been an additional headwind.

"Just as people have to pay more to trade up their house after a property boom, despite the value of their current home increasing, employers have to contribute larger cash sums to reduce their pension scheme deficits when markets rise."

Mr Keogh added that many companies waited to hear the details of the Pension Protection Fund levy, published last month, before they addressed their deficits. But a handful of large companies such as HBOS and HSBC made contributions in excess of £1bn into their pension funds last year. George Henshilwood, at Hymans Robertson, the actuarial consultants, said deficits would continue to rise if bond yields remained low, unless equity returns were "super-high".

The new research comes one day after revelations by Arcadia, the retail chain owned by Philip Green, and the Co-operative Group that they plan radically to change the benefits for staff in their final-salary pension schemes.