FTSE 100 firms pay record pension contributions

LONDON (Reuters) - The country’s top 100 companies made a record 17.5 billion pounds in pension contributions last year, some paying more into their schemes than to shareholders to tackle deficits, consultant Lane Clark & Peacock (LCP) said.

FTSE 100 firms increased contributions to defined benefit (DB) schemes by 50 percent to help plug shortfalls due to the market turmoil that hit pension assets, LCP said in a study published on Wednesday.

“By some distance, (this is) the highest contribution amount that we have seen in the past six years,” said Bob Scott, partner at LCP and the report’s main author.

Higher contributions as well as rallying markets helped cut the corporate pension deficit to 51 billion pounds ($78.88 billion) at the end of June 2010 from 96 billion last year.

Payments last year to defined contribution (DC) schemes, the cheaper option used as an alternative to DB, nearly doubled compared to the last five years to more than 21 billion pounds.

The largest reported contribution was by Royal Dutch Shell

at 3.3 billion pounds.

BAE Systems, British Airways, Invensys, Lloyds Banking Group , Morrisons, Rolls-Royce, Serco and Wolseley paid more into their schemes than they did to their shareholders in 2009.

LCP said that one-third of the sample, or 32 companies, failed to make reference to pension risk or did not report taking any steps to reduce it in their 2009 accounts.

In 2009 pension schemes continued to budget for increasing life expectancy by increasing their members’ longevity estimates, which LCP said added 9 billion pounds to FTSE 100 balance sheet liabilities.

“These adjustments reflect as well pressure from the pensions regulator and auditors for assumptions to be more prudent,” Scott said.

The extra cost of longer-living pensioners could be partly offset following the government’s announcement that inflation increases to pensions will be switched in future to the consumer price index from the current retail price index.

If the switch had already taken place the pension deficit would have been cut by 30 billion pounds, LCP said.

Reporting by Cecilia Valente, Editing by Michael Shields