British firms burdened with £73 billion pension deficit

Posted on August 9th, 2010 | Categories - Pensions

The biggest companies in the UK are suffering from a collective pension deficit of £73 billion according to research by consultancy firm Pension Capital Strategies (PCS).

BT, British Airways and Invensys – famous companies which chart in the FTSE 100 – are contending with pension liabilities that are more than double their market value, saddling them with a huge burden of debt. The PCS said: “there has been a noticeable growth in the number of FTSE 100 companies where the pension scheme now represents a material risk to the business. Ten FTSE 100 companies have total disclosed pension liabilities greater than their equity market value”.

The research showed that BT is suffering from a £43 billion debt – the largest pension liability sum recorded in the last 12 months.

These shortfalls mean that many companies have to find extra capital to ensure they can pay their employees on retirement. A rise in life expectancy, which increases the demands on pension funds, together with the whopping deficit troubles are acting as a double hit to pension payment plans.

A similar report by actuaries firm Mercer said:  “FTSE 100 company pension schemes have increased their longevity assumptions for their pensioners for the fourth consecutive year. On average, scheme members aged 45 are now expected to live nearly two years longer from retirement than a member currently aged 65”.

However, the PCS figures also showed a £17 billion improvement on last year’s statistics signalling that some firms are choosing to use their spare cash to fund pension deficits.  Royal Dutch Shell contributed a massive sum of over £2.7 billion and five companies were able to disclose a pension surplus.