Big businesses pour billions into their pension funds

FTSE 100 firms increased contributions to defined benefit (DB) schemes by 50 per cent to help plug shortfalls due to the market turmoil that hit pension assets, LCP said in a study published yesterday.

"By some distance, (this is) the highest contribution amount that we have seen in the past six years," said Bob Scott, partner at LCP and the report's main author.

Higher contributions, as well as rallying markets, helped cut the corporate pension deficit to 51bn at the end of June 2010 from 96bn last year.

Payments last year to defined contribution (DC) schemes, the cheaper option used as an alternative to DB, nearly doubled compared with the last five years, to more than 21bn.

The largest reported contribution was by Royal Dutch Shell, at 3.3bn.

BAE Systems, British Airways, Invensys, Lloyds Banking Group, Morrisons, Rolls-Royce, Serco and Wolseley paid more into their schemes than they did to their shareholders in 2009.

LCP said that one-third of the sample, or 32 companies, failed to make reference to pension risk or did not report taking any steps to reduce it in their 2009 accounts.

In 2009, pension schemes continued to budget for increasing life expectancy by increasing their members' longevity estimates, which LCP said added 9bn to FTSE 100 balance sheet liabilities.

"These adjustments reflect as well pressure from the pensions regulator and auditors for assumptions to be more prudent," Mr Scott said.

The extra cost of longer-living pensioners could be partly offset following the Government's announcement that inflation increases to pensions will be switched in future to the consumer price index from the current retail price index.

If the switch had already taken place, the pension deficit would have been cut by 30bn, LCP said.