The pension deficits of FTSE 100 firms declined by nearly £12b during July, the biggest reduction since October 2003, says Watson Wyatt.
The consultancy firm says the reduction comes largely as a result of an increase in equity markets and rising bond yields leaving the estimated aggregate deficit for the FTSE 100 at £55bn for the July month end.
However, Watson Wyatt adds the figure is still down on the £1b recorded at the beginning of the year.
Senior consultant at Watson Wyatt, Stephen Yeo says: “Although companies are contributing to their pension schemes at record levels, it is movements in the value of assets and liabilities that dominate the changes in the FRS17 measure of pension deficits.”
Yeo says July shares lifting 3%, along with bond yields rising from a recent low point, have combined to slice FTSE 100 pension deficits by nearly £12b in a single month.
But he says the deficit remains stagnant over a seven-month period for 2005, because of falling bond yields increasing the value of liabilities, by approximately the same amount as assets have risen.
Moreover, figures from the Office for National Statistics indicate contributions to all company pension schemes reached a record £22.5bn in 2004, five times up on the record £4.1bn amount contributed by employees.
Yeo concludes: “Falling real returns and rising longevity mean that the cost of pensions has risen. Some companies have increased the contributions required from members, but these figures show that company pension schemes are now worth more than ever to employees.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
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