Pension funds for UK's largest firms miss out on rally
Pension schemes for FTSE 100-listed companies failed to benefit from a rising stock market in the past year, leaving them with a gap between assets and liabilities of some £43 billion pounds ($66.09 billion), according to a new report released on Tuesday.
The pension funds have upped their equity exposure over the last year but this has not helped fill the funding hole, which is £1 billion larger than it was a year ago, research from financial consultancy firm Lane Clark & Peacock (LCP) showed. The funds plunged into deficit in 2008, going from a £12 billion surplus in 2007 to a £41 billion deficit a year later.
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LCP partner and report author Bob Scott blamed constant regulatory and legislative challenges along with falling bond yields for the shortfall. However, equity exposure in FTSE pension funds still only makes up 36.4 percent of asset holdings.
"There is a £43 billion hole, but the FTSE 100 companies in aggregate have nearly £500 billion in their pension funds. The pension funds are not about to run out of money and investment performance has been good," Scott told CNBC.
"As equity values rose over the year and gilt yields looked increasingly unattractive, asset holdings in equities grew to 36.4 percent compared with 34.8 percent last year. This figure is still nowhere near the figures of almost 70 percent in 2001," he added.
(Read more: Company pensions in peril as shortfalls hit record)
Over the last five years, U.S. and U.K equities on average have delivered in excess of 20 percent for investors, with the FTSE gaining 23 percent and the S&P 500 up 35 percent since 2008.
Some 61 FTSE 100 companies continue to provide defined benefit pensions to their employees according to LCP, however this number is set to fall as companies move pension funds off their books, said Scott.
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"Many companies are closing down their pension schemes. New employees who join a company today, won't be given the kind of pension you would have had 20 years ago, so the liabilities are very long term but they are finite," he said.
"Most companies would like to have it off their balance sheet and eventually pass it off onto an insurance company," he added.
—By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave