Pension Capital Strategies Limited (PCS) has reported that 2007 was another good year for pension scheme deficits.
The total deficit in the FTSE100 Pension Schemes at 31 December 2007 was estimated to be 8 billion. This is an improvement of 27billion on the position 12 months ago.
“Although equity markets have shown only modest increases in 2007, increases in interest rates have meant smaller pension liabilities. For the FTSE100, this means that total pension liabilities have reduced by an estimated 19 billion to 389 billion. Also FTSE100 companies have helped the situation by paying extra contributions, estimated at 7 billion, into their pension schemes to reduce deficits,” says Charles Cowling, managing director, PCS.
However this good news is tinged with caution on two fronts. Firstly, the Pensions Regulator is encouraging pension scheme trustees to be more cautious on the funding of pension schemes, particularly when it comes to setting mortality assumptions.
“PCS believes that pension schemes will have to increase life expectancy assumptions still further in 2008 and for the FTSE100 this could add another 40 billion to liabilities. Also, new guidance on accounting standards may mean that companies have to recognise larger pension deficits in their accounts or that they will not be allowed to recognise pension surpluses in their accounts – which in turn could lead to companies deliberately under funding pension schemes to avoid surpluses that they cannot show in their accounts,” adds Cowling.
This new accounting guidance affects company years starting from 1 January 2008, and may have a material impact over the next year. PCS will be issuing its detailed report on the FTSE100 and their pension disclosures later this month.