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Strong showing is foiled by growing pension liabilities

The pension deficit faced by Britain’s biggest 350 listed companies rose by 24 per cent to 93bn in 2005 despite strong returns from equity markets.

Mercer Human Resource Consulting research found that FTSE 350 pension asset values rose by around 60bn to 422bn but liabilities grew at a similar rate.

The average UK pension fund returned 18.2 per cent over the past year, according to Mellon Analytical Solutions, but this was not enough to reduce deficits as falling bond yields caused liabilities to grow.

The strong performance was driven by double-digit returns in equity markets. UK equities remains the single biggest asset class for UK pension fund investment and achieved a market return of 16 per cent over the year.

Mercers worldwide partner Tim Keogh says FTSE 350 companies made contributions of 5bn in 2004 to reduce their pension liabilities but last year’s figure will not be known until company accounts are published.

He suspects that many will not have made additional payments until they find out what Pension Protection Fund levies they will incur.

He says: “Favourable investment performance did little to dilute the value of pension scheme deficits in 2005. Our experience suggests that many companies have waited to find out the cost of their Pension Protection Fund levy and the strength of the new funding regulations before they revise their contribution plans. We have yet to see the radical change in contribution strategy the Pensions Regulator is probably hoping for.”

MAS0 publications and statistics manager Daniel Hall says: “By the end of 2004, pension funds had got back to where they were at the start of the decade, in terms of fund value. In 2005, they have finally star- ted to move ahead.”

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