Deloitte Estimates FTSE 100 Pension Gap Has Doubled

July 17, 2009 ( - A new Deloitte estimate indicates that the combined pension funding shortfall at FTSE 100 companies more than doubled since January to over £300 billion.

According to a  press release , Deloitte said that this is the highest ever level and more than double the estimated aggregate deficit of £130 billion at the start of the year.

David Robbins, a partner in Deloitte’s pensions consulting practice, said: “The continuing fallout from the recent financial turmoil means that pension deficits have risen to the highest levels ever seen. Many companies now face demands for huge contributions to their pension schemes in order to repay losses made on investments.”

Shifts Ahead?

For some companies the current rate of cash contributions to pension funds has reached unsustainable levels, and according to Deloitte, to compensate, they are now seeking to shift capital and assets from their balance sheet to their pension fund. This can include real estate assets, the value of brands or other investments. Deloitte expects this trend to increase significantly over the next few years.

David Robbins said: “If pension funds had to rely purely on cash contributions from companies it could, at the current rate, take more than 50 years to clear the aggregate pensions deficit. This position will not be acceptable to pension plan trustees – but significant cash contribution increases would be unaffordable for companies. The solution to this that companies need to consider is to transfer the value of their assets to the pension scheme. There are some interesting and innovative ways to do this.”

Closures Not Enough

Until recently, companies have reduced the cost of their final salary pension schemes by reducing the benefits provided by the schemes or moving to a cheaper defined contribution schemes for new employees.   Many companies are now closing their defined benefit pension schemes to all their employees. Yet closure will not remove the issue of large pension deficits and accompanying cash demands, notes Deloitte.

David Robbins concludes: “Closing the defined benefit pension scheme to all employees is a big step which many companies have previously shied away from.   However, with the current unprecedented funding levels in pension schemes and with companies being forced to cut costs in order to remain afloat, we expect to see many more pension schemes closing.”