Hymans Robertson's newly launched pension deficits measure, penSAFE, has shown that the total deficit faced by FTSE350 companies amounts to £163bn.

The independent pensions and benefits consultant has unveiled the measure to aid UK firms when assessing the varying risks that defined benefit (DB) pension schemes pose. It said that 20 firms share £100bn of these total deficits.

Its penSAFE report, which puts pensions into context for businesses, combines four distinct measures to illustrate the strain pension schemes place n FTSE350 firms. Hymans Robertson said that by stripping away the distortion that they said is caused by IAS19.

"The IAS19 standard currently masks the pensions problem by allowing the measurement of liabilities to be distorted by the credit crisis," explained Chris Hurry, partner at Hymans Robertson. "Our estimates show the true picture is closer to £163bn deficit."

The report found that around 40 per cent of FTSE350 companies with final salary schemes have pensions deficits that represent more than a quarter of the company's value, or that would take more than a year of earnings to pay off.

The financial sector was found to be least affected by pensions issues, and that despite greater trustee powers, companies spend less today on pensions deficits as a proportion of earnings than they did two years ago. Hymans Robertson said this is also surprising when the stringent funding requirements are taken into account.

"Looking at aggregate accounting pension surpluses and deficits misses the point of the pensions risks facing UK firms," said Clive Fortes, head of corporate consulting at Hymans Robertson. "The dramatic increase in relative penSAFE deficits reflects the impact not only of lower values of the supporting businesses but falling scheme asset values. This is particularly true where schemes have had significant exposure to the equity market. In the coming months, it will be interesting to see if scheme trustees ask their sponsors for more cash to fund deficits and whether this has a negative effect on UK plc's ability to climb out of recession."

- Pensions Age February 2009

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