09 March 2010
Published in: Longevity - mortality
Pensions schemes leaving “significant” risks unhedged
Significant risks remain unhedged in the pensions schemes of FTSE 350 companies, according to research published today. The aggregate pension deficit of the FTSE 350 increased from a £16bn surplus to a £142bn deficit during 2009, the research revealed.
According to Hymans Robertson, the consultancy that published the report FTSE 350 pensions analysis, half the FTSE 350 leave 20% of their market cap exposed through unhedged liabilities in pension schemes. Despite this, "most companies remain well equipped to deal with their pension liabilities," the report argues: half the companies in the index have a pension deficit of less than 6p in the pound of market capitalization.
The report uncovered significant sector differences. The financial sector - except some high street banks - is strongest placed to manage its pension-scheme risk while the industrial sector has the largest pensions burden.
"Inevitably opportunities will arise in the future to de-risk pension schemes at affordable prices," Clive Fortes, head of corporate consulting at Hymans Robertson, commented. "We expect that many companies will wish to capture these opportunities and should prepare now by establishing governance frameworks, triggers and budgets to enable them to do so."
Key findings of the report are:
- Half of the FTSE 350 leave 20% of their market cap exposed through unhedged liabilities in pension schemes
- Five companies in the FTSE 350 have a pension deficit in excess of their market capitalization
- It would take eight companies in the FTSE 350 more than five years' of earnings to pay off their pension deficit
- Most FTSE 350 companies remain well equipped to deal with their pension liabilities, but this hides significant sector differences
- With the exception of many of the high street banks, the financial sector is very well placed to manage its pension risks
- In contrast, Britain's industrial sector is burdened with large legacy pension liabilities that put them at a competitive disadvantage in the global market-place
- In spite of the best investment returns for four years the aggregate pension deficit of the FTSE 350 (as measured by IAS [Insurance Accounting Standard] 19) moved from a £16bn surplus to a £142bn deficit during 2009 because of a reduction in credit spreads
- This will lead to a disclosure of increased IAS19 pension deficits during this reporting season
- Hymans Robertson expects pension spending to increase in 2010 as the deterioration in funding positions in 2008 and 2009 feeds through into recovery plans