Contact: Alison Agmen-Smith
Deloitte
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The total deficit for the final salary pension plans of the UK’s top 100 companies is currently £21 billion according to actuaries at Deloitte, the lowest deficit for more than five years. Deloitte estimate that 25% of the UK’s top 100 companies now have a surplus in their schemes relative to the value of their accounting liabilities.
The first 3 months of 2007 have been a rollercoaster ride for pension scheme deficits. In the last week of February, deficits rose by £20 billion as world stock markets fell dramatically. However, a combination of a recovery in the stockmarket and a fall in the price of the bonds has reduced deficits to a 5-year low.
David Robbins, a pensions partner at Deloitte, comments: “For the first time since 2001, we are starting to deal with schemes which have surpluses. Surprisingly, a surplus can be a headache for the company as it is near impossible for the employer to take a refund from a pension scheme. Many companies have now closed their schemes so may find it increasingly difficult to use up the surplus. The surplus could effectively become stranded”.
Deloitte argue that committing large cash sums up-front may not be the best option to fund pension deficits and advise companies to start looking now at strategies which reduce the risk of a stranded surplus arising, or defer the payment of contributions whilst still providing members with security for their pensions.
One option is for a company to use assets that it owns such as land, property or machinery to provide security to the pension scheme on a loan. The company agrees to make annual repayments spread over a long period (e.g. 10 years) which are passed on to the pension scheme. If the employer is later unable to make the repayments, the trustees can recover the outstanding value from the secured asset. The asset remains the property of the company and the pension deficit is reduced by the value of the loan.
Nigel Pickard, a tax partner at Deloitte, adds: ““The beauty of this arrangement is that the deficit is reduced immediately; there’s a matching tax deduction, whilst the cash payments to the scheme are committed over time. It may also be possible to structure the arrangement so that there is future flexibility, so as to deal with potential surpluses.”
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.
Download our press release Pension deficit hits new low with supporting graphs (PDF, 233 KB).
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.
