Many of Britain’s biggest companies have pension black holes which outstrip their market value and which seriously impact the financial decisions their directors make.
The pension deficits of the FTSE100 companies have soared by £42 billion from £515 billion to £557 billion in the past year, according to the latest figures.
Many of these companies face some tough decisions to make over how they spend their profits that could hamper their trading performance.
Royal Dutch Shell – with the largest pension liability of £54 billion – has a market capitalisation of around £152 billion.
Another 15 firms have pensions underfunded by more than £10 billion, says the study by pension experts JLT Employee Benefits.
Companies owing more than they’re worth
Among the companies with the biggest pension deficits are:
- Sainsbury’s – with a market capitalisation of just over £6 billion has a pension liability that increased by around £780 million in the first three months of this year to surpass the market value by 13%
- International Airlines Group – owners of British Airways and Spanish airline Iberia – has a pension liability that dwarves market capitalisation of £6.7 billon three times over.
The research also highlights BAE Systems, RSA, the Royal Bank of Scotland and BT with pension debts that add up to more than company values.
However, although some companies increased their pension deficits, the total for all FTSE100 companies was £16 billion down to £60 billion for the year ending March 31, 2014.
The report also showed HSBC Bank made the largest deficit contribution of £0.5 billion as the company pension scheme shrank by £2.8 billion to £7.7 billion. The bank has a market capitalisation of£114.4 billion.
Impact on trading
Other points raised by the research were that around 60 firms offered a ‘handful’ of employees retirement guarantees with defined benefit pensions and the top 10 FTSE100 company pension deficits account for 25% of all private sector debt.
The Pension Regulator has vowed to monitor FTSE100 pension liabilities more closely to try to avoid financial risk for retirement savers and pensioners.
JLT director Charles Cowling said: “Depending on the size of the pension scheme and how much is owed, some companies could find their liabilities affect how they can compete with other companies.
“For instance, if BT has to make a larger pension contribution, the company may have a problem competing with BSkyB in bidding for sporting broadcast rights. This could then impact profits and share prices.”
