FTSE 100 pension deficits slashed by £32bn

The aggregate pension deficit for the UK’s biggest companies dropped by 63% in the last year thanks to shifting indexation measures and continuing high levels of employer contributions.

The 18th annual LCP Accounting for Pensions report, published today, estimated the combined deficit had tumbled from £51bn to £19bn, reported Accountancy Age’s sister publication Professional Pensions.

But LCP senior partner Bob Scott (pictured) warned against complacency, pointing out that the combined liabilities still stood at £400bn – equivalent to £4bn for each company.

“The buy-in and buyout market has been active and prices are keen but they wrote £8bn of business last year, so it’s going to take a lot of time to get these liabilities settled,” he added.

The report cited the shift from Retail Prices Index to Consumer Prices Index – generally only for deferred members – as being a key driver for the falling deficits.

Scott explained this switch – not open to all and still to be implemented by many schemes – benefited sponsors but at the cost of reduced pensions for members.

“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,” he said.

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

It said the decrease also reflected positive asset returns over the year and more stable corporate bond yields.

Elsewhere, the report found schemes were increasingly finding innovative ways to plug deficits, turning to funding partnerships and additional contributions triggered by company performance.

The provision of final salary pensions continued to decline with several companies – including AstraZeneca, Lloyds and United Utilities – introducing caps to limit future pension increases.

Fifteen more FTSE100 companies – including Aviva, Unilever and Vodafone – closed their final salary pension schemes to future accrual in 2010, or announced closures in the near future.