Pensions blackhole deepens to record £96bn

The pension fund shortfall of Britain's biggest firms has more than doubled to a record £96 billion in a year, a report said today.

Actuaries Lane Clark & Peacock (LCP) said the financial crisis had helped send the combined deficit of FTSE 100 companies' pension schemes soaring from £41 billion a year ago. It was £12 billion two years previously.

The current £96bn funding gap, calculated from data last month, is the largest recorded shortfall recorded under the international accounting rules currently used for Footsie pension funds, the firm added.

LCP said the plunging values would pile more pressure on companies to stop offering defined benefit pension schemes for employees.

Just three FTSE 100 companies - Cadbury, Diageo and Tesco - said they offered defined benefits to new employees, the report said.

The report also calculated the FTSE 100 share index would need to rise from its current level of 4,600 to more than 7,000 to wipe out the deficits.

LCP partner Bob Scott said the deficits had ballooned since March this year as historically low interest rates hit bond yields, which are a major source of pension scheme funding.

He said: "The collapse of Lehman Brothers in September 2008 had a significant impact on the UK pension schemes of FTSE 100 companies.

"Asset values fell sharply yet, paradoxically, the effect did not show up immediately in company accounts as corporate bond yields rose and inflation expectations fell.

"However, since March this year, deficits have ballooned as aggressive cuts in interest rates and quantitative easing have caused these factors to reverse."

Mr Scott added: "Looking ahead, the outlook for the economy and financial markets remains unclear, creating further uncertainty for pension scheme finances."

Pension schemes have faced a double whammy of falling asset values and rising liabilities due to factors like people living longer in recent years.

Barclays recently announced that it was shutting its final salary scheme and transferring its 18,000 staff members to a hybrid one instead, while supermarket group Morrisons is replacing its final salary scheme with a career average one for its 10,000 members.

Last month American Express also said suspended pension contributions for all its UK staff for the next 18 months, saying the payments had become unaffordable.

Other firms have announced measures to reduce or freeze benefits completely for existing members.

The funding shortfall faced by all the UK's defined benefit pension schemes broke back through the £200 billion barrier during June, figures showed.

The deficit of the 7,400 defined benefit schemes, including final salary pensions, widened to £200.1 billion during the month.