Unilever reveals £650m shortfall

UNILEVER'S pension fund shrank by £1.2bn to £10bn last year, leaving the Anglo-Dutch maker of Persil and Wall's icecream nursing a huge deficit under new accounting rules. The group's annual report shows that under the controversial FRS17 rules, it has a net pension liability of £647m - one of the biggest funding gaps revealed by a UK business.

The new rules require an annual snapshot of a pension scheme's assets and liabilities, with any deficit accounted for on the balance sheet. Previously, a firm could smooth out the effects of a scheme deficit over a period of years.

Companies have also been hit by a double-whammy of falling stock markets, which have reduced the value of pension fund investments, and growing liabilities as pensioners live longer. The FRS17 rules do not come into effect until next year, but Unilever admits: 'They will have a significant impact on reported results.'

Other businesses revealing big pension fund shortfalls under the new rules include BAE Systems (£776m), AstraZeneca (£463m) and ICI (£453m).

Finance directors say that having to provide annual snapshots of their pension schemes' funding position is unfair because pensions are long-term liabilities whose market value will fluctuate wildly, especially if schemes are heavily invested in more volatile equities. Nearly two-thirds of Unilever's pension assets are invested in shares.

News of the shortfall comes just months after it settled a long-running dispute with Merrill Lynch Investment Managers over the poor performance of its £4bn UK equity fund, which was run by the US-owned fund manager. The case attracted wide publicity because it pitted MLIM's star fund manager, Carol Galley, against Wendy Mayall, Unilever pension fund's chief investment officer.

The UK fund, which has 90,000 members, is now run by Schroders, Barclays Global Investors and Fidelity.

A Unilever spokesman said there were no plans to scrap the company's final salary scheme and substitute a defined contribution plan, where the investment risk would be transferred to the employee. Under the old method of accounting, Unilever's scheme was fully-funded, with assets exceeding liabilities of £880m by 21%.