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The Actuary The magazine of the Institute & Faculty of Actuaries

FTSE 100 pension deficits more than halved in 2010


The 18th annual Accounting for Pensions report states that the combined FTSE 100 pension deficit has fallen from £51bn to £19bn at the end of June this year.

Key reasons attributed to this include continuing high contributions from employers as well as the introduction of a ‘small print lottery’, while the change in the inflation measure from the retail prices index (RPI) to the consumer prices index (CPI) has seen some companies benefit vastly —namely BT, which has seen a £3.5bn decrease in liabilities thanks to the switch.

Bob Scott, senior partner, LCP, said: “The gain for companies comes at a cost for many employees in the form of reduced pensions. The change to CPI is entirely dependent on the wording of each scheme’s rules and we’re seeing a ‘small print lottery’ under which a 45 year-old deferred pensioner in one scheme is unaffected yet a similar member in another scheme could stand to lose roughly a quarter of the value of their pension.”

However, Mr Scott went on to warn against complacency: “It would be a mistake to think that the pensions challenge has gone away. FTSE 100 companies still have about £400bn of UK IAS19 pension liabilities and the challenge remains not only to ensure that members receive what they were promised but to find ways to provide today’s young employees with decent pensions as final salary schemes decline.”

The report also found that £11bn of the £17bn contributed to schemes by blue chip companies went towards reducing deficits rather than providing additional benefits for employees.

Elsewhere, figures showed that defined benefit pension schemes continued to decline, while an emerging trend is for companies to enter into partnerships with their trustees — Marks & Spencer and Sainsbury’s are among the companies to have adopted this practice.