FTSE100 Companies May Be Underestimating Pension Deficits

May 7, 2007 (PLANSPONSOR.com) - The pension deficits of FTSE100 companies have eased by an estimated £20 billion over the last year, but a UK-based pension consultant suggests that this estimate doesn't take into account changing mortality rates.

According to a paper  by Pension Capital Strategists (PCS), the companies that comprise the FTSE100 are underestimating future life expectancy by between two and four years, which means the pension deficit could be off by as much as £60 billion, bringing the total shortfall to as much as £80 billion.

The companies with the best funded position were:

  • Royal Dutch Shell,
  • Old Mutual, Resolution,
  • Lonmin,
  • Associated British Foods,
  • Johnson Matthey,
  • Home Retail Group,
  • Gallaher,
  • Schroders, and
  • BP.

The FTSE100 companies with worst pension funding position were:

  • Whitbread,
  • Hammerson,
  • Wolseley,
  • Tesco, and
  • ICAP.

According to PCS, FTSE100 companies contributed £13.4 billion to fund their pension plans in the last financial year, up from £11.8 billion in the previous year; however, the total disclosed pension liabilities of the current FTSE 100 companies have grown from £383 billion to £394 billion.

Another pension problem facing UK companies is the increased levies set by the Pension Protection Fund (PPF), which are expected to total £675 million for 2007-2008, a substantial increase over the 2006-2007 levy estimate of between £300 million and £320 million.