Contact: Jo Ouvry
Deloitte
Public Relations
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Contact: Katie Broome
Deloitte & Touche LLP
+44 020 7303 6359
The total deficit for the final salary pension plans of the UK’s top 100 companies is currently £38 billion according to actuaries at Deloitte, the business advisory firm. Pension deficits have shrunk from £75 billion at the start of the year due to healthy stock market returns.
Pension scheme assets have benefited from double-digit investment growth in share prices, which is important because most pension schemes invest a significant proportion (60% on average) of their assets in the stock market. UK shares have increased in value by 17% over 2006. Higher levels of contributions from employers in recent years have also helped. The FTSE 100 currently pay contributions of c. £15 billion per annum to their final salary plans.
For 2007, mortality will be the biggest issue for companies to grapple with. Deloitte believe that companies are under increasing pressure from regulators, auditors and their shareholders to reconsider their allowance for increasing life expectancy. Full allowance for increasing life expectancies might add up to £20 billion to pension deficits.
David Robbins, pensions partner at Deloitte, comments: “Back in the 1950s when many pension schemes were set up, average life expectancy was 70. Nowadays, pensioner life expectancy could be more like 85 years for some pension plans. Pension plans will be paying out benefits for far longer than was once expected.”
There are two key investment strategies at opposite ends of the spectrum that pension plans will consider over 2007. On the one hand, many plans are looking at Liability Driven Investment (LDI) where the assets are matched to liabilities to reduce the volatility of pension liabilities. This strategy forfeits possible future equity out-performance in return for reducing the risk from possible stock market crashes. On the other hand, there are also increasing numbers of pension plans looking to their equity investments and other return-seeking asset classes.
Robbins says: “We expect to see a move to equities and emerging asset classes over 2007. LDI has been the buzzword for 2006 and involves stabilising the investment risk by matching assets to the liabilities. However a number of large pension schemes have recently made a move to private equity and hedge fund investments as they seek higher reward for the risks they are taking.”
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Ends
Notes to Editors
The above analysis is based on Deloitte calculations of the FTSE 100 companies using disclosed FRS 17 and IAS 19 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 which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions. Services are provided by member firms or their subsidiaries and not by DTT. 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.
