Firms may have to inject extra cash into pension schemes

A study by a leading investment bank highlights how far falling stock markets have eroded the ability of company pension schemes to pay members.

Since 2000, many company pension schemes have moved from surplus to deficit.

As a result, some schemes may have to be closed or firms forced to bail them out from profits.

Profits exceeded

STRIKES OVER PENSIONS? The mood of BAE Systems workers is unmistakable, they will take industrial action to defend their pension rights Jack Dromey, T&G union Click here to read about pension worries at BAE Systems

Credit Suisse First Boston analysed the pension funds of the UK's leading 100 firms and found that they had moved from enjoying an �80bn surplus in 2000 to a similar size deficit at the end of 2002.

The picture is worse still amongst small and medium sized limited companies, whose combined pension deficit actually exceeding total profits.

About 160 small and medium sized limited companies are under even more pressure, their deficits amounting to 133% of operating profits.

Pension schemes have suffered due to more than two years of stock market falls, which has seen the FTSE lose nearly half its value.

Long term, if a company pension scheme runs a deficit and cannot meet members' liabilities, firms will have to choose between paying into schemes or winding them up.

Unfortunately, winding up a company pension scheme can mean that some members do not get back what they have paid in.

Recently Tesco and BT both dipped into profits to help keep their pension schemes in the black.

Pension holidays

In addition, a recent report from Incomes Data Services added to the gloom surrounding UK company pensions.

The report found that employers' contributions to pension schemes have risen by 25% during the past two years.

And in the past year they increased to �6bn from �5.3bn, the survey of 339 schemes suggested.

IDS said its study showed the "vast scale" of company money flowing into pension schemes.

It reflects the way many companies took �18bn in "pension holidays" during the 1990s boom, using the rising price of investments to justify halting their contributions or even taking money out of their funds.