Deloitte actuaries estimate that the total deficit for the final salary pension plans of FTSE 100 companies stands at £75 billion at year-end 2005.  The total deficit has grown from around £65 billion at the start of the year, despite improved investment markets and a threefold increase in contributions in recent years.

David Robbins, consulting Partner at Deloitte commented: “Falling interest rates have increased the value of pension deficits.  While the market value of pension scheme assets has increased over the year by around 15%, this has not been enough.  We estimate that the stock market would need to rise immediately by a further 30% to eliminate the UK’s pension deficits.”

Mr Robbins went on to say: “2005 is the year in which the UK’s finance directors have finally accepted that pension deficits are company debt.  Companies are now starting to use new and innovative ways to manage this debt.  These include using escrow accounts, guarantees from parent companies or banks, and liability hedging using derivatives.  We predict the FTSE 100 deficit will fall back to below £65 billion by the end of 2006.”

Radical changes that have affected UK pensions in 2005 include:

• The Pension Protection Fund (PPF) was established to act as a safety net for pension scheme members in the case of employer insolvency.  From 2006, companies are required to pay to the PPF a levy depending on the size of their pension deficit and their own financial strength.
• The new Pensions Regulator was established and given powers to police company pension schemes. In particular the Pensions Regulator has demanded faster funding of pension deficits where it believes company actions may adversely affect the security of members’ benefits. The Regulator will also oversee new legislation governing pension scheme funding which takes effect from 30 December 2005.
• Last month, Lord Turner unveiled his proposals for pension reform in the UK, including the introduction of the National Pension Savings Scheme, which may compel employers to make pension contributions on behalf of all of their employees.

Mr Robbins added: “With the increasing pressure from the PPF, the Regulator, and Lord Turner, we are advising companies that addressing the problem now could save a lot of headaches later.“

Ends

Notes to Editors
The above analysis is based on Deloitte calculations of the FTSE 100 companies using disclosed FRS 17 information on their UK and overseas pension and post retirement benefit arrangements.

About Deloitte Total Reward and Benefits Limited
Deloitte Total Reward and Benefits Limited is a multi-disciplinary consulting group comprising 100 actuaries and other pensions and benefits specialists, which focuses on delivering high quality pensions advice to employers and scheme trustees.

Deloitte Total Reward and Benefits Limited is authorised and regulated by the Financial Services Authority.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.