Pensions gap pushes ICI into retreat

ICI, the ailing chemicals giant, is struggling to win shareholder support for a rescue rights issue after the disclosure of a £453m deficit in its pension fund. The shortfall arises because of new accounting rules.

The group is one of several companies to announce that they are closing final salary pension schemes because of worries over funding.

ICI, headed by Dr Brendan O'Neill, has been trying to allay shareholder fears that it will be crippled by the need to make good the £8bn fund's shortfall. It has told them the group will make top-up contributions of £30m a year for the next six years. One major shareholder said: 'The £453m figure is much larger than we've been working on and we would be concerned if it hit cashflow. ICI has been quite open about the need to top up the pension scheme by £30m a year.'

The group, which is raising £800m from shareholders to reduce nearly £3bn of debts, denied there was a crisis or that it was heading for cashflow problems. ICI said: 'There is no question of us using money raised in the rights issue against the deficit in the pension fund.'

The deficit was revealed in rights issue documents sent to shareholders. It follows the disclosure last week that Consignia, formerly the Post Office, could face a £600m shortfall in its pension fund if it goes ahead with 30,000 planned redundancies. There are concerns that other 'mature' pension funds - those of old established companies with many more pensioners than employees - could show enormous deficits under the new FRS17 accounting rules.

They include British Airways, Lattice, Rolls-Royce, Corus, BT, Invensys and Pilkington.

ICI, which now has 70% of its pension investments in bonds, said the valuation of its scheme at the end of 2001 had been affected by the low price of shares on the remaining 30%. The group also runs schemes, still largely held in shares, for overseas employees. Under existing rules, the ICI pension fund is showing a deficit of less than £180m.