UK - ITV's pensions deficit had increased to £538m (€631m) on an IAS19 basis by the end of June. But the company has claimed this deficit could have been reduced by up to £100m if its proposals had been in place to cap pensionable salary increases to 1%.

Second quarter figures published yesterday by the television company revealed the IAS19 deficit jumped almost £400m in the first half of this year from a shortfall of just £178m at the end of December, despite a regular deficit funding contribution of £30m.

ITV blamed the deficit increase on a decline in the value of scheme assets and the impact of a higher inflation assumption on the liabilities, and despite the extra contribution - in line with an earlier agreement with trustees to make annual payments of £30m to 2013 - the deficit had hit £538m on an accounting basis.

However, ITV initiated a consultation with members last week over proposed changes to the pension scheme, in a bid to try and limit future liabilities and help close the £646m actuarial shortfall identified at the end of December 2008 which is believed to have "worsened" in the first half of 2009. (See earlier IPE article: ITV consults on DB changes as deficit predicted to worsen)

The consultation proposes capping increases to pensionable salary at 1%, even if increases to basic salary are higher, and the results claimed "had such proposals been implemented before the end of the first half, the [IAS19] deficit would have been approximately £75m to £100m lower than the balance sheet level".

The consultation is open to feedback until 25 September 2009 and any changes are expected to be implemented form 1 January 2010. Iin the meantime, ITV claimed it "remains in close dialogue with the pension trustee and the next triennial valuation is due in 2011".

Richard Jones, principal at Punter Southall, pointed out the increase in the deficit over the six months was equivalent to around eight times the earnings before interest, tax, depreciation and amortization (EBITDA) that ITV had earned over the period.
 
He said: "The key driver of the increased deficit was rising long term inflation expectations in financial markets. Inflation expectations rose from 3% to 3.5% per annum over the past six months.  Given that the ITV pension scheme has a duration of 15 years such a change could have increased the cost of the benefits payable by up to 7.5%."
 
Jones claimed the big challenge for ITV will be if the funding position does not improve by 1st January 2010 or 1st January 2011 when the next triennial valuations of the various sections of the ITV scheme are due.

"ITV seem to be managing their scheme proactively, but with the pension scheme deficit so large the only way that the deficit is going to be seriously reduced is through additional cash contributions from ITV or excess performance on the equity and property assets," said Jones.

He warned "all other things being equal a return of equity indices to their highs in 1999/2000 would eliminate the majority of the deficit in the scheme so all is not lost. But it is likely that ITV will have to continue paying substantial sums into its pension scheme for the foreseeable future."

Trustees at the scheme were unavailable for comment at the time of publication.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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