"Real" FTSE pension gap over 100 billion

By Raji Menon

LONDON (Reuters) - The financial crisis has pushed FTSE 100 pension deficits to more than 100 billion pounds if schemes calculate liabilities using "appropriate" interest rates, according to accountancy firm Deloitte.

The firm is advising pension fund clients to base calculations of future pension payments on corporate bond yields only of non-financial institutions to reflect their true value. Non-financial yields are now considerably lower than yields on financials.

Pension schemes have to calculate their liabilities using a discount rate generally based on AA-rated corporate bond yields. A higher yield results in lower liabilities and consequently lower deficits.

"From an audit perspective, using yields on financial bonds (to calculate liabilities) lacks credibility," David Robbins, consulting partner at Deloitte told Reuters.

The other major factor contributing to rising deficits is tumbling financial markets, which have knocked about 20 percent off the value of pension assets.

"UK pension schemes are addicted to equities, with around 60 percent of their assets in equities, and that is too high," he said.

"Pension scheme deficits could have been anywhere between 100 and 200 billion pounds because of Friday's falls, but it came back quite a bit on Monday. Even with that recovery, deficits would still be as high as 100 billion pounds."

Consultancy firm Watson Wyatt has estimated that FTSE 100 companies had a surplus of 12 billion pounds at the end of September, taking into account what it called "significantly higher AA-rated corporate bond yields that have made liabilities appear smaller."