FTSE 100 Pension Shortfalls Still Heading North

August 4, 2009 (PLANSPONSOR.com) - Pension plans at FTSE 100 companies ran an aggregate £90-billion shortfall as of June 30, 2009, an £82-billion increase over a year earlier, according to a new study.

The Pension Capital Strategies latest quarterly report also indicated that 13 companies disclosed a pension surplus in their most recent annual report and accounts, while 75 companies disclosed pension shortfalls. However, the company said only around five companies would disclose a surplus if they had a year-end date of June 30, 2009.

The report said plans’ flight out of equities into bonds continues and may be accelerating. Researchers said the average plan asset allocation to bonds has increased to 49% from 41% – the largest 12-month shift in investment strategy for more than 20 years and follows a significant shift, from 35% the previous year.

According to the report, 24 FTSE 100 companies increased their bond allocations by more than 10%.

The report also asserted that 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.” Twelve FTSE 100 companies have total disclosed pension liabilities greater than their equity market value, while for British Airways, BT, and Invensys, total disclosed pension liabilities are more than three times their equity market value.

According to the report, Royal Dutch Shell plans to inject an additional $5 billion (£3.3 billion) into its pension plans this year to supplement its regular contributions of £891 million in 2008. The announcement was in response to the deficit of £5.8 billion disclosed in its latest accounts – the highest deficit in the FTSE 100 and is compared to a surplus of £6.8 billion a year earlier.

Pension Capital Strategies said that attempts by many companies to stem the growth of their pension liabilities by closing defined benefit plans to new hires have had little impact since changes in economic conditions and increasing life expectancy have contributed to the spiralling growth in pension liabilities.

The report is available here .