Pensions 'black hole' shrinking?

Sep 25 2003 by Brian Amble Print This Article

The recent rally on London's stock market has reduced the 'black hole' in pension funds of the UK's biggest companies, according to a new study.

Research by investment bank Dresdner Kleinwort Wasserstein (DKW) found that the joint pensions deficit of the Britain's top 100 companies has narrowed from £62.4bn in March to £49bn - a decrease of 22 per cent.

The improvement reflects stronger stock market returns from pension fund investments. The stock market has risen by nearly a third since mid-March. For the previous three years, company pension funds had been badly hit by the three-year slump in equity values triggered by the burst of the late 1990s technology and telecoms bubble.

Last month, figures compiled by actuaries Lane Clark & Peacock suggested that the pensions deficit of the FTSE100 companies had doubled over the previous twelve months and equated to six per cent of the total market capitalisation of the FTSE 100.

The mounting deficits have led to many companies suspending their final salary pension schemes in an effort to limit their liabilities.

The companies which have recorded the biggest improvement in their pension funds since March are National Grid, Transco, BT and Marks & Spencer, according to the Dresdner study.

However, some companies continue to nurse hefty pension fund deficits, with one group of firms representing 12 per cent of the FTSE 100 index's value accounting for a quarter of its total pension shortfall.

But the Dresdner report warned that it is still too soon to celebrate the end of the pensions crisis.

"Investors are placing a great deal of faith on restructuring and the economic recovery," said its author, Karen Olney.

"If the recovery is not as strong as prior recoveries, investors may be heading for some disappointment."