Europe's top companies are staring into a €280bn (£193bn) pensions abyss, despite huge rises in company contributions and bumper equity markets.
According to Dresdner Kleinwort Wasserstein, the combined pension deficit of the Eurofirst 300 companies has been stuck at the same level since 2002.
At the same time, the accountancy giants responsible for auditing these groups are facing their own pensions crisis, as the combined shortfall of the "big four" in the UK has hit more than £800m.
DKW's report revealed that companies had failed to plug the gaping hole in European corporate pensions even though they had increased contributions by 40 per cent and enjoyed a 20 per cent jump in equity markets in 2004. It forecasts the combined deficits will remain at €280bn when full accounts for 2005 are published.
British companies topped the list. ICI, BT and BAE had the highest pension liabilities as a percentage of market capitalisation, and BT's £4.8bn deficit is likely to cast a shadow over any efforts by private equity firms to take the telecoms giant over.
Karen Olney, DKW's equity strategist, said the companies' management teams must be "fed up" with pensions but warned them against overhauling their investment strategies or attempting to ditch the schemes. "While we are sympathetic to their frustration, we worry that they could make two costly mistakes. One is the race into an over-crowded asset pool, namely bonds. And more worrying is the fear that they hand over their plans to buyout specialists such as insurance companies." She added that a move to sell the pension schemes could be as costly as buying technology stocks in January 2000.
The report said a rush into bonds could drive yields down and make the situation worse.
The big four accountancy firms - PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young - do not have outside investors, so the partners are having to dig deeply into their own pockets to plug the black holes in staff pension plans. The combined deficit has hit £813m after KPMG was forced to take responsibility for an £88m hole in one of its funds.
The £813m equates to £354,000 per partner. In 2005, the average profit per partner in the big four was £613,000.
PwC has the largest deficit: in its most recent annual report, it reveals a £298m shortfall spread between two funds. Ernst & Young reports a £230m deficit, while Deloitte's is £182m.
Eddie Donaldson, KPMG's head of human resources, said: "KPMG will now agree with the [pension fund] trustee an appropriate plan to ensure the scheme is adequately funded over time." The firm said it had already set aside £13m in 2004 and provisionally earmarked a further £15m late last year to deal with the deficit. It expects to pay it off over the next five to 10 years.
Ernst & Young has committed itself to paying £10m a year into its fund until 2013, while PwC has also said it will clear its deficit.
A spokeswoman for Deloitte confirmed that the partners would be funding the deficit, adding: "The firm has agreed a funding plan with the trustees of the pension scheme which will cause the liabilities of the scheme to be fully funded over the next 10 years."
The DKW report comes less than a fortnight before the Secretary of State for Work and Pensions, John Hutton, is due to make a keynote speech on the role of the state in pension provision at the Institute of Public Policy Research.Reuse content