LONDON (Reuters) - The pension funding gap of Britain’s top companies has widened in the past year despite billions of pounds of corporate cash being injected into retirement schemes, a report said on Tuesday.
Pension consultants LCP said pension scheme deficits for companies in the UK’s FTSE 100 blue chip stock index grew to 43 billion pounds at June 30 compared with 42 billion a year before, as fund assets didn’t generate enough cash to cover obligations.
The finding is an illustration of the impact of repeated rounds of “quantitative easing”, under which the Bank of England has been buying back bonds to boost economic growth, contributing to a sharp drop in the yield on British government gilts - a staple investment for pension funds.
Pension funds have been left searching for higher-yielding investments such as real estate while they wait for gilt yields to turn higher.
The problem is not small, given FTSE 100 member companies remain responsible for pension liabilities worth nearly 0.5 trillion pounds, according to LCP.
“The (pension fund) deficit remains stubbornly high in spite of 21.9 billion pounds in company contributions,” LCP said in its 20th annual survey of FTSE 100 company pension schemes.
The consultancy - whose deficit estimate is based on the companies’ own actuarial forecasts for their pension obligations - also noted Britain has seen many governmental and regulatory changes, including the “auto-enrolment” initiative.
“Pension planning continues to be blighted by seemingly constant regulatory and legislative change,” said LCP partner and report author Bob Scott.
(LCP's report can be found here)
Editing by David Holmes