After running deficits for years, FTSE-100 companies now enjoy between them a 4 billion sdurplus. Or so says the latest survey of pension fund disclosures by UK listed plan sponsors published today by Pension Capital Strategies Ltd (PCS), a pensions risk management and recovery adviser.
The PCS research shows that over the last few months the FTSE100 pension schemes have for the first time in more than five years moved to an overall surplus of 4 billion, as of the 30 June 2007. PCS describes the news as “a remarkable turnaround” from the last PCS quarterly report, FTSE100 and Their Pension Disclosures, which found that as of the 31 March 2007 the FTSE100 pension schemes had 20 billion of pension scheme deficits.
“This good news does however raise a number of difficult questions for companies and shareholders around the treatment of surplus assets,” says PCS in a statement. “PCS believe that if companies and shareholders are not receiving the full benefit of any upside in the pension scheme investment performance, then the investment risk in the pension scheme becomes inefficient and costly for shareholders. In many cases it would make sense for companies to lock in recent gains and encourage a significant reduction in risk taking in the pension scheme, a move which should also be welcomed by trustees.”
Commenting on these findings, Charles Cowling, Managing Director of PCS says the last few months have seen some astonishing changes in the balances of FTSE100 pension schemes. “We are now actually seeing an overall surplus in these schemes,” he says. “These changes raise a number of important questions that need to be addressed urgently by company boards in order to adjust investment strategies to look after shareholder interests. We believe that for many companies the optimal strategy will now be to encourage pension trustees to lock in recent investment gains in the pension scheme by moving to a much lower risk investment strategy.”