30/11/2011
By Ilonka Oudenampsen
Despite the FTSE 100 Global companies having made record scheme contributions over the past year, their aggregate pension deficits rose by €120bn, or 70 per cent, to €290bn, according to the European Pensions Briefing report published today by LCP.
Alex Waite, partner and head of LCP Corporate Consulting, said: “The year ahead looks like it may well bring one burden too many for European pension schemes. Pressure to deal with new pensions accounting under IAS19, volatile markets and regulatory uncertainty are likely to lead to further pressure for organisations to reform pension plans in every one of the many countries where our clients operate.”
LCP said the prospect of Solvency II-type principles to pensions is likely to undermine the sustainability of DB plans in many European countries, while new pension accounting rules could present additional risks for multinationals during these troubled times.
Phil Cuddeford, partner at LCP and co-author of the report, explained: “Analysts, lenders and shareholders will take a long hard look at companies’ 2011 annual report and accounts in the light of the new accounting changes. Those that have taken steps to manage pension risks will send a clear and confident message to the markets. Those that haven’t may well find that they are judged harshly by markets and lenders increasingly concerned about pension risks.”
LCP said the three main changes under IAS19 are: increased disclosure, as new disclosure requirements will accompany the introduction of a principles-based approach; no more ‘corridors’, which is a particular issue for Dutch companies and would reduce shareholder equity of those using this method by about €16bn; and no more ‘expected returns’, which will decrease the profits of 66 of the FTSE Global 100 by a total of €14bn.
But Cuddeford added: “The good news is that there’s plenty that companies can do to prepare for the challenges ahead. De-risking through cutting benefit accruals, de-risking investment strategies, offering members the option to leave schemes and using insurance-based solutions such as buy-outs and buy-ins are all ways to batten down the hatches for the storm ahead.”
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