FTSE firms tackle pension deficits

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Final salary schemes of FTSE 100 firms are set to be £15 billion in surplus at the end of 2007 - a £55 billion improvement over a £40 billion deficit the previous year, accountants Deloitte said.

Solid investment returns of around 3.5% and higher levels of employer contributions have helped swell the funds, according to Deloitte. Falling prices of company bonds which are used to value pension liabilities have also helped.

Recent years have seen huge deficits reported by final salary pension schemes, which pay out a pre-determined annuity based on salary and length of service, due to a combination of workers living longer, changes in taxation and falling stock markets.

Two years ago the funding shortfall collectively faced by Footsie firms was estimated at £75 billion.

In response to the deficits, businesses have poured in cash, closed or restructured their schemes or even sold them on to specialist pension fund managers.

Deloitte pensions partner David Robbins said current forecasts for pension scheme performance next year could see the surplus figure double to £30 billion - leading to concerns about "over-funding" that could trap firms' cash inside the schemes. He said: "Over 2008 companies will be looking to solve their pensions problems for good. Options that include transferring pension schemes to new specialist pension buy-out companies are beginning to look viable."

This month engineering company Rolls Royce completed a £500 million injection into its three defined benefit schemes to shore up a liability that was valued at £665 million earlier this year, and newspaper publisher Trinity Mirror also paid in £100 million.

Magazine publisher Emap and wine merchant Thresher are among those companies who have agreed to transfer their pension assets and liabilities to a specialist manager this year.

Mr Robbins said more buy-outs could be expected if surpluses continue to increase during 2008. He also highlighted the role pension schemes have played in major corporate transactions.