The U.K.'s largest companies will need to hike retirement contributions by a combined £5 billion ($7.75 billion) by 2013 as they fight to curb defined benefit plan deficits and as auto enrollment boosts participation in defined contribution plans, according to investment consultant Lane, Clark & Peacock.
In 2011, FTSE 100 companies contributed a combined £21.4 billion to all retirement plans, about even with the previous two years, a new report from LCP states.
About half of the 2011 contributions — £11.1 billion — were deficit payments into DB plans. Despite those additional payments, the aggregate deficit of the companies' DB plans more than doubled to £41 billion, up from £19 billion in 2010, driven by falling corporate bond yields and weak returns in equities.
An additional £2 billion in aggregate corporate deficit contributions is expected in coming years, Nick Bunch, partner at LCP, said in an e-mail.
Meanwhile, total DC contributions, which totaled nearly £5 billion in 2011, are expected to rise to about £8 billion by 2013, once auto enrollment begins, Mr. Bunch said.
“It is clear that the present pensions system will not bear such increased demands on companies' finances. Therefore, the likelihood is that we shall see further cutbacks in the level of benefits for future service, combined with a greater appetite amongst companies for effective 'liability management' exercises,” according to LCP's “Accounting for Pensions 2012.” The report is done annually.
Equity allocations in corporate pension plans fell to 35%, about half the level as in 2001, LCP found. Still, pension deficits were highly volatile in 2011, with single-day swings in the value of aggregate deficits of as much as £10 billion.