The total deficit for the final salary pension plans of UK companies currently stands at £100 billion, according to analysis by Deloitte. This compares to £130 billion at the start of the year. The deficits of FTSE 100 pension plans have decreased to £52 billion compared to £65 billion at the start of the year. The improvement is largely due to a healthy return of 10% on the stock market since 1 January.

Deloitte predicts that, at the current rate of company contributions, it will take more than 15 years for deficits to be cleared. However, they argue that companies will increasingly look to eliminate deficits in one go instead, by borrowing money and paying the proceeds into the pension plan.

David Robbins, Consulting Partner at Deloitte, comments “Companies can receive near-immediate tax relief on pension plan contributions. Paying the deficit off over 15 years or more, means the tax benefit would only be achieved over that period, whereas borrowing money to fund the whole deficit accelerates the tax break.”

Companies who immediately clear their deficits could also gain from a reduction in their levy to the new Pension Protection Fund. This levy could amount to more than £10 million a year for some of the UK’s largest companies. From April 2006, the levy will, in-part, depend on how well-funded the pension plan is: the deeper the deficit the larger the levy.

Robbins says “The decision to eliminate a deficit by borrowing depends on the company being able to obtain competitive interest rates, which often depends on the extent and security of existing loans. However, right now there are a number of banks willing to support company finances.”

Robbins comments “Employees who read stories in the press about pension deficits want reassurance that the benefits in their own scheme are fully funded and secure.”

Notes to Editors
The above analysis by Deloitte is based on real-time calculations of the FTSE 100 companies using disclosed pensions accounting information on their UK and overseas pension and post retirement benefit arrangements, and on information on UK companies’ pension schemes.

About Deloitte
In this press release references to Deloitte are references to Deloitte Total Reward and Benefits Limited, a subsidiary of Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK’s fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004.

It is a member 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.