Pension deficit of FTSE 100 widens despite shares rally

The total deficit on the pension schemes of the FTSE 100 companies has widened in 2004, despite the stock market rally.

Several new surveys released yesterday showed that an infusion of cash by employers and the 10 per cent rise in the value of UK equities had failed to make an impression on a shortfall now estimated at up to £65m.

The deficit on the final-salary schemes of the UK's largest hundred companies has grown £5m from £60m at the start of the year, according to Deloitte, the accountancy firm.

Five companies have black holes of £3bn or more, including BP, Unilever, BAE Systems and Lloyds TSB, on Deloitte's calculations. BT Group, which has the largest gap between its current assets and its likely future liabilities, is still more than £5bn short, despite having tripled contributions to top up the pension fund in the past financial year.

FTSE 100 companies have made pension payments of an estimated £14bn this year, up 40 per cent on 2003.

David Robbins, a consulting director at Deloitte, said: "The usual things that help have happened, companies have made higher contributions and the equity market has gone up. The trouble is that the yield available from long-term bonds has reduced, so expectations for future returns are lower now, and companies need to invest more money now to meet their liabilities than they did a year ago."

A second estimate yesterday, from Watson Wyatt, a pensions consultant, put the FTSE 100 pension deficit at £61m, up from £60m a year ago, while Hewitt, another consultancy, said the shortfall had remained static in the £50bn to £60bn range.

The figures underscore how difficult it could be for the UK's biggest companies to eradicate the pensions deficits, which opened up as a result of the bear market in equities, the lower expectations for inflation and bond yields, and the extra liabilities implied by pensioners living longer.

Alex Waite, a partner at Lane, Clark & Peacock, actuaries, said 2005 will be a "watershed year" with significantly higher contributions from companies to bring down the deficits. He said: "The new Pensions Act puts more power and responsibility in the hands of fund trustees, and they can put pressure on companies to increase contributions."