FTSE 100 companies are set to spend as much on paying the pension promises to past employees as they are on current employees’ benefits, according to KPMG’s fourth annual Pensions Repayment Monitor.
Furthermore, KPMG said that 22% of these large employers face no prospect of clearing pension deficits from discretionary cashflow over any reasonable time period.This figure is up from 15% last year.
It said the research showed just how unaffordable defined benefits schemes had become, with only 12 FTSE 100 firms now showing an accounting surplus compared with 21 the previous year.
Mike Smedley, pensions partner at KPMG in the UK, said: “It is unprecedented for companies to be spending as much or more on their defined benefit pension benefits for previous employees than for current staff. The fact that we are now reaching this point graphically illustrates the increasing unaffordability of defined benefit schemes.
“Unless companies and their pension scheme trustees can work together to ensure that pension funding can be managed in a way that does not impact on companies’ wider financial flexibility, this is likely to result in more and more companies opting to close defined benefit schemes altogether.”