2008 was the worst ever year for the FTSE 100 index. It may not look such a bad year for their pension schemes, but there are long term concerns, warns Pension Capital Strategies

2008 was the worst ever year for the FTSE 100 index. It may not look such a bad year for their pension schemes, but there are long term concerns, warns Pension Capital Strategies

19th February 2009, London - Pension Capital Strategies Limited (PCS) has today published its latest report on the pension schemes of the FTSE 100 as at 31 December 2008 and can reveal that its estimate of the total surplus in the pension schemes of the FTSE100 amounts to £12 billion at 31 December 2008. This compares with an £8 billion deficit at the end of 2007.

This analysis would suggest that pension schemes have enjoyed a good 2008, but Charles Cowling, Managing Director, PCS, warns otherwise “Pension funding positions in company accounts have improved in 2008, largely due to deficiencies in the accounting rules, as significant asset losses in pension schemes have been matched by reductions in the accounting value of pension liabilities. ”

Under the accounting rules the value of a company’s pension liabilities is linked to the value of AA bonds. As AA bonds have fallen in value in the credit crunch, so have the accounting value of pension liabilities.

Charles Cowling continues, “The fact that AA bonds have fallen in value is not a good reason to regard your pension liabilities as being a lot lower. It is just a quirk of the accounting rules that is hiding the problems that many pension schemes currently face.

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. At 31 December, 2008 13 FTSE 100 companies had total pension liabilities greater than their equity market value. For British Airways, Invensys, BT, Lloyds TSB and HBOS (now the Lloyds Banking Group), total pension liabilities are more than double their equity market value. Since 31 December, both Royal Bank of Scotland and Barclays have also seen the significance of the relative size of their pension liabilities grow considerably.

The importance of this was highlighted by a recent warning from Moody’s on the impact of

Comments are closed.