Rise in pension scheme under-funding

The survey of FTSE 100 companies revealed wide variations in the funding levels of pension schemes with 17 schemes reporting a funding level of less than 100% compared with seven last year.

Alarmingly, in one instance the size of the deficit was nearly £170m.

‘Falling interest rates and increasing longevity are hitting defined benefit pension schemes hard, and low or negative returns on pension fund assets are compounding the problem,’ said Brian Wilson, the head of benefits research at Bacon & Woodrow.

Moreover, under accounting standard FRS 17, the picture could become more negative in the future, according to Wilson.

‘Under the current accounting standard SSAP24, the funding position shown does not have to reflect fully the position at the balance sheet date and the assumptions adopted can be very diverse.

‘As FRS17 is introduced over the next three years, companies will have to show not only up-to-date figures but also figures which have been calculated using a common method and market-based assumptions. It’s likely that future years’ disclosures will paint a more negative picture of pension scheme funding than we’re seeing this year,’ he said.

But the study did produce some better news. Eighty-three schemes reported funding levels in excess of 100%, with 20 reporting a funding level of 125% or more.


Bacon & Woodrow website

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