UK- Research by consultants Watson Wyatt suggests about half the pension schemes of the largest 100 companies in the UK are likely to report deficits as of the end of 2001 thanks to FRS17. According to the consultant, the total deficit for those funds reporting at 31st December is roughly £4bn (e6.5bn) allowing for deferred taxation.
Figures for last year have been particularly dire due to falling equity markets and rising bond prices and companies with an average pension fund will have seen their FRS17 solvency level fall by up to 15%.
Robert Hails, a partner at Watson Wyatt says that following such a poor year, it is surprising that half the schemes have managed to avoid a FRS17 deficit. The end of year reports make for pretty dire reading but Hails questions how representative FRS17 is since it takes a snapshot of schemes’ assets and liabilities.
“The level of FRS17 deficit in many cases is in the range of 5% to 10%. Almost without exception, these companies expect to earn a return from their scheme’s assets of between 1% to 2% per annum more than the FRS17 discount rate. With asset outperformance of 1% to 2%, most of the FRS17 deficits will be eliminated within five to ten years,” he says.
Watson Wyatt questions whether many of the companies will increase their contributions as most have long term strategies that are unaffected by short term market volatility.
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