Pension crisis needs more cash

PENSION deficits for Britain's top 100 companies have shrunk from £55bn to £42bn over the past year, but a massive injection of cash is still needed.

Actuaries Lane Clark & Peacock say improving equity markets, and a doubling in company contributions to £10bn, reduced the deficit by £13m.

But it warned companies still hold an average of only £84 in assets for every £100 of liability under FRS 17.

Martin Slack, senior partner at LCP, said: 'I would be surprised if we don't see quite a jump in contributions in next year's survey.'

Though FTSE 100 firms put £10bn into their pensions, just £3bn of this went towards reducing the deficit and the rest met extra liabilities. To wipe out the £42bn shortfall by August 2005, the FTSE 100 index would need to rise by one third to above 5,900.

LCP believes that the deficit could be more than £20bn larger if firms used latest estimates for longer life expectancy. Joining the euro could hike the deficit by a similar amount because European bonds have lower yields.

Accounts filed for 2003 reveal six companies, including BT and British Airways, that have pension deficits which impose a 'significant balance sheet risk'. This is because they have large pension schemes relative to the size of their business and they are heavily invested in equities.

They all had deficits that were greater than a quarter of their market value in the year ended 2003, as did Sainsbury, Whitbread, GKN and Cable & Wireless. Only four of the 89 FTSE 100 companies with final salary schemes reported a pension surplus in their 2003 accounts - Associated British Foods, Boots, Exel and Old Mutual.

Large pension black holes 'are proving to be quite a hurdle' to some takeover bids, says Slack, pointing to Permira's decision to pull out of buying WH Smith.