Pension schemes face record £96bn shortfall

Britain's biggest pension schemes are almost £100bn short of the funds they need to meet their liabilities, according to a leading actuarial consultant. This would be the biggest such shortfall ever recorded.

Lane Clark & Peacock (LCP), which conducts annual audits of the health of the final-salary pension schemes of the UK's 100 largest public companies, said their collective deficit as at the middle of July was £96bn – more than double the £41bn reported in 2008.

The collapse in the value of many pension schemes was initially caused by sharp falls on global stock markets last autumn, but has recently been exacerbated by falling corporate bond yields. New accounting standards require schemes to value their future liabilities with reference to these yields, which have slipped back so far that gains from the recent stock market recovery have been wiped out at most funds.

The value of assets held by the UK employee pension schemes of FTSE 100 companies fell sharply last September, "yet paradoxically the effect did not show up immediately in company accounts, as corporate bond yields rose and inflation expectations fell," said Bob Scott, a partner at LCP.

However "since March, deficits have ballooned as aggressive cuts in interest rates and quantitative easing have caused these factors to reverse," he said.

The scale of the pension problem is causing mounting difficulties for many businesses. In the past week alone, BT, ITV, BAE and BAA have reported large increases in their pension deficits, as well as expensive action plans to combat the problem. LCP said that had new proposals from regulators for companies to include pension losses on income statements been in force at the end of 2008, the aggregate profit reported by FTSE 100 constituents would have fallen by 70 per cent.