However, taking into account the current value of AA bonds, the funding position for FTSE 100 companies actually shows a surplus of £12bn.
Charles Cowling, managing director of PCS, said: “Pension funding positions in company accounts have improved in 2008, largely due to deficiencies in the accounting rules, as significant asset losses in pension schemes have been matched by reductions in the accounting value of pension liabilities.”
Cowling warns that this accounting surplus hides a 30% growth in liabilities over 2008 (see table in picture above).
“There has been a noticeable growth in the number of FTSE 100 companies where the pension scheme now represents a material risk to the business,” he said.
As of December 31, 13 FTSE 100 companies had total pension liabilities greater than their equity market value; out of these British Airways, Invensys, BT, Lloyds TSB and HBOS all had liabilities of more than double their equity market value.
Furthermore, PCS reports that since December 31, both Royal Bank of Scot-land and Barclays have also seen the size of their pension liabilities grow considerably.
Cowling warned that such companies could ill afford to see a dramatic revaluation of their pension liabilities.
“With the risks represented by their pension schemes becoming ever more significant, it is not surprising that many companies are looking at strategies for exiting their pension liabilities,” he said.
“We believe that over the next five years, the majority of private sector companies will have closed their final salary schemes to all employees and implemented strategies aimed at getting rid of their historic pension liabilities, which are now causing them so much pain.”
The report also identified companies with the healthiest funding ratios. The top five were Old Mutual, Royal Dutch Shell, AMEC, Cable & Wireless and Experian.
Other results showed the pension funds that have made big switches into bonds in 2008. The biggest move was made by the Rolls-Royce pension fund, which moved from a 32% allocation to a 74% allocation.
Illustration
Company size at 31 December, 2008 (£m) Increase in pension liabilities as a proportion of Company equity value*
British Airways 2,073 196%
Invensys 1,390 106%
BT 10,468 99%
Lloyds TSB 7,526 67%
HBOS 3,731 61%
Royal Bank of Scotland 19,491 42%
Barclays 12,842 41%
Marks & Spencer 3,386 40%
FirstGroup 2,091 40%
BAE Systems 13,287 39%
