UK Pension Schemes Another £10 Billion in the Hole

December 27, 2005 ( - Consultants Deloitte & Touche report that the total deficit of FTSE 100 company pension schemes has increased to £75 billion from £65 billion at the start of this year.

According to an MSNBC report, in spite of strong equity markets and higher contributions from employers, Deloitte says the shortfall has widened because the increase in the value of pension scheme assets has been offset by falling interest rates.

David Robbins, consulting partner at Deloitte, said that although the market value of pension scheme assets had increased generally by about 15%, the gains were insufficient to offset the effects of falling interest rates.   He said the stock market would need to rise an additional 30% to eliminate the deficits, according to the news report.

In addition, Robbins said that, when companies fully allowed for rising longevity,it would add an additional £10 billion to £15 billion to total company pension scheme liabilities.

On the upside, Robbins noted that finance directors had finally begun to accept that strong equity markets alone would not fix their ailing pension schemes, and that they must both increase contributions and find ways of reducing the risks that interest rates would fall further.   Particularly, companies are looking at using derivatives to limit the risk of liabilities rising when interest rates fall.

Deloitte predicts that the aggregate deficit of the FTSE 100 companies will again fall below £65 billion by the end of 2006 because of higher contributions and stock market gains.