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£61bn
was wiped off the value of pension schemes in the FTSE 350 between
31 March and 30 June 2008, if figures from Mercer are to be believed.
The firm’s latest quarterly pensions report on the FTSE 350
shows that market turmoil has turned balance sheet assets into liabilities,
which they warn, could create further difficulties for companies
already suffering from the credit crunch.
FTSE 350 pension liabilities are up to two per cent of market capitalisation
according to the report, compared with March figures of 19 per cent.
A surplus of £14bn in March 2008 has crashed to a deficit
of £47bn in June 2008. The average funding level was found
to be 90 per cent, down from 103 per cent in March.
Mercer estimates that average liabilities of a median FTSE 350 company
fell at 25 per cent of market capitalisation, and for the exposed
five per cent of FTSE 350 companies the deficit as a percentage
of market capitalisation has increased from 8.3 per cent to 21.2
per cent since December 2007.
“Trustees need to assess and monitor their sponsoring companies
in these turbulent times to understand which category they lie in,”
commented Deborah Cooper, head of Mercer’s retirement resource
group.
Cooper added that while equities are still the asset of choice for
pension schemes, managers should be aware of the volatility they
are exposing funds to. “Employers should consult with trustees
about the investment products available to mitigate the downside
risks that equities and inflation impose on their scheme, and therefore
on their balance sheet,” she said.
She added that although companies may not want nor be able to buy
out liabilities, other alternatives should be considered: “They
also need to be extra vigilant in keeping track not only of their
pension scheme finances, but also the finances and covenant of their
supporting companies.”
- Pensions Age
August 2008
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