Pension black hole gets bigger at FTSE 250 firms in spite of funding

Ben Southwood
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THE PENSION deficit black hole within FTSE 250 firms more than doubled last year, according to research released yesterday.

Figures from JLT Pension Capital Strategies showed that schemes are £11bn short overall, compared to a total deficit of £5bn last year.

The surge came despite firms piling £1.5bn into funding deficits over the last year, up from £1.2bn in 2010.

Taylor Wimpey and Cable & Wireless led the way, with payments of £122m and £101m respectively into their pension pots.

Invensys has the biggest pension liability, at £5.5bn, which represents roughly 320 per cent of its market capitalisation. It has a deficit of £428m, according to JLT. Overall, 18 companies in the FTSE 250 have reported deficits above £1bn.

Charles Cowling, managing director for PCS commented: “This latest data underlines the precarious situation most companies now find themselves embroiled in. Changes in economic conditions and increasing life expectancy have contributed to spiralling growth in pension liabilities.

“There are a significant number of FTSE 250 companies where the pension scheme represents a material risk to the business.”

Bonds now make up 50 per cent of portfolios, compared to last year’s figure of 48 per cent, as funds reduce their exposure to risky equities at the expense of returns. This is part of a three year trend in which the allocation of bonds in pension portfolios has increased eight per cent.

“This de-risking is coming at a significant cost, as evidenced by the fact that pension deficit funding is significantly up,” argued Cowling.

The collapse in defined benefit schemes continues, with only 15 of the FTSE 250 providing such benefits to a significant number of employees.