Pension schemes face record £96bn deficit

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Pension schemes run by blue chip companies face a £96 million deficit, as the financial crisis has slashed their funds in half.

Actuaries at Lane Clark & Peacock cite the collapse of Lehman Brothers in September 2008 as a turning point with asset values tumbling. At the same time corporate bond yields went through the roof.

The yields on bonds have since fallen back dramatically, passing the 5% mark which is considered by investors to be the point where the merits of investing in bonds versus shares become diminished.

The report from LCP also warns that many blue chips are paying insufficient attention to their pension risks. It says only 17 set out a policy in their report and accounts for dealing with pension risk. The actuaries compare this with other financial risks such as currency risk, which all FTSE companies provide full disclosure for.

Conversely LCP’s report cites examples of companies that have benefited from taking action early. Standard Life for example disclosed gains on pension assets of 14% from the beginning to the end of 2008.

Bob Scott, partner at LCP, said: ‘Looking ahead, the outlook for the economy and financial markets remains unclear, creating further uncertainty for pension scheme finances. Those companies which work with their pension scheme trustees to identify and reduce pensions risk will be better placed to weather any future financial storms than those which fail to act.’

It is expected that the vast black hole facing company pension schemes will prompt trustees to ask for higher cash contributions from employers.