Number of FTSE Firms Providing Final Salary Benefits Drops

(August 23, 2010) — Despite an uptick in equity markets, a study by Pension Capital Strategies (PCS) has found that the number of FTSE 250 companies providing final salary benefits to a majority of employees has dropped to just 15, down from 20 a year ago.

The decline in DB coverage reflects mounting difficulties for companies seeking to prevent growing pension liabilities in the face of economic hardship and longer life expectancies. An additional study earlier this month by Mercer showed that as a result of changes in accounting assumptions, median liabilities at FTSE 100 companies jumped about 20% last year, as pension scheme longevity assumptions increased for a fourth consecutive year. “Rising life expectancy continues to have serious financial implications for pension schemes,”  Mercer’s Warren Singer stated in the research report.

According to PCS, an advisory group that is owned by the insurer JLT Group, out of the FTSE 250, only 144 companies have any type of pension scheme, with 86 companies still providing “more than a handful” of current employees with DB benefits. PCS found that the pension liabilities of FTSE 250 companies have grown from £55 billion to £68 billion over the past year.

Meanwhile, the report by PCS revealed that 21 FTSE 250 companies, including FirstGroup, Premier Foods, and Go-Ahead, have total disclosed pension liabilities greater than their equity market value. Yet, following new financial measures from companies to support their schemes, the total pension deficit of FTSE 250 schemes as of June 30 fell by £1 billion over the year to £11 billion, PCS stated.

“More than ever before, pension liabilities are impacting decisions in the boardroom. Faced with a challenging business cycle, it is not surprising that companies are reacting by closing down their final salary pension schemes,” said Charles Cowling, managing director at PCS, according to The Telegraph.

Separately, research by MetLife Europe has shown that market volatility has slashed annualized returns from direct investment in the FTSE 100 to 0.5% over the past ten years. The firm showed total returns on £200,000 invested in December 2009 had only grown to £212,000, as the FTSE 100 experienced high volatility through this period. “Governments cannot control the stock markets but they can provide the legislative framework for providers to offer flexible and transparent products aimed at maximising pension saving,” MetLife UK managing director Dominic Grinstead said, according to Global Pensions.