Pension funding levels are far worse than the already poor accounting figures suggest and many companies will need to increase future pension contributions to meet their liabilities, according to Barclays Capital.
Its research found that deficits had increased significantly over the last year as a result of depressed asset values and growing pension obligations.
To illustrate the extent of the problem it assessed the size of a company’s pension deficit as a percentage of its total market value. This found that packaging company DS Smith was the most vulnerable with its pre-tax deficit equivalent to 54.5% of its market capitalisation. Also facing large deficits when assessed as a percentage of market capitalisation are Interserve, WS Atkins and Go-Ahead Group.
The research also argues that the situation is unlikely to improve. With pension schemes using different calculations to assess current market values and future obligations, deficits are likely to increase further. Additionally, with companies only required to report full pensions data once a year, there are likely to be significant differences between the figures quoted in annual reports and the current values.
Closing a scheme isn’t necessarily going to curb the problem either. It found that while many companies are closing pension schemes to prevent record deficits spiraling higher, the high costs of doing this coupled with governance complexity and the long-term nature of pensions means that in many cases this only has a small impact financially.