It’s not just chastened bankers who will lose out as a result of this year’s financial turbulence. According to new research from Deloitte, the pension schemes of the UK’s biggest 100 listed companies have lost £65bn in the last year – in other words, plummeting asset prices and equity markets have combined to wipe out five years’ worth of pension contributions in the space of just 12 months. In fact, Deloitte reckons that the FTSE 100 pension pots are now an eye-watering £130bn in the red.
And with the economy facing a painful 2009, the situation could get a lot worse before it gets better, says Deloitte. Asset prices are likely to drop even further, while lower interest rates will make government bonds more expensive – so deficits are likely to spiral even higher. This is bad news for the companies concerned, because they’ll probably be asked by trustees for extra cash to cover the scheme’s costs – cash that could otherwise be used to finance much-needed investment in the core business.
So all in all it’s a pretty gloomy picture from Deloitte, which points out cheerily that the average FTSE 100 pension fund has returned a downright dismal minus 17% over the course of the year. Even with the caveat that some of the funds will have done a bit better than this – i.e. the ones who didn’t put all their money in banking stocks – that’s a depressing statistic for the thousands of employees who have been dutifully paying into these schemes for years. Turns out they’d have been better off stuffing their money under the mattress…
Then again, this alarming £65bn figure might be complete pie-in-the-sky. Another study out today, from pension specialist Aon Consulting, suggests that FTSE pension pots will actually end the year £3bn in surplus – it reckons (somewhat implausibly) that the rising yields on corporate bonds have more than made up for any fall in asset prices. Deloitte, on the other hand, argues that this is nothing more than an ‘illusion’, and has decided to ignore it altogether.
So in summary: big company pension funds are either deep in the red or not in the red at all, depending on your favoured accounting technique. Aren't you glad we’ve cleared that one up?
In today's bulletin:
FTSE 100 suffers worst ever year as shares plummet
Autonomy's Lynch heads Britain's Top 100 Entrepreneurs
Morgan and USC fall victim to high street woes
Pension schemes shed £65bn in 2008
Quiz: MT's 2008 in 20 Questions