Top companies bump up pension scheme payments

The UK's biggest companies paid nearly twice as much into their pension schemes during 2003 as they did the previous year, research showed today.

Consultants Watson Wyatt said 75% of FTSE 100 companies with year ends of December 31 had increased the amount they paid into their final salary schemes during the year, with contributions rising by an average of 95%.

The group, which analysed the pension schemes of 40 of the 50 FTSE 100 companies with December 31 year ends, said companies paid the equivalent of 13% of their total payroll into schemes during 2003, up from just 7% the previous year.

It said in 2002 the contributions paid into the schemes barely covered the ongoing cost of new accruals, but for 2003 contributions not only covered this, but a similar amount also went towards boosting the strength of the schemes.

However, the group said despite the increase in the amount being paid into occupational pensions and the recovery in the stock market, the pension deficit collectively faced by FTSE 100 firms remained unchanged at around ?60bn under the new accounting standard FRS17, which requires the assets and liabilities of the pension scheme to be valued according to current market conditions rather than smoothing out stock market volatility over time.

It added that even if companies continued to contribute to the schemes at their current level it would take many years before the deficits were eliminated unless their was a dramatic improvement in the stock market.

Chinu Patel, a partner at Watson Wyatt, said: "Company contributions are normally set following the three-year actuarial valuations and not the annual accounting calculations.

"However, concerns about growing deficits and the increased profile of pensions in corporate affairs generally have had an impact on companies' pension funding decisions.

"This came at a time of improved pre-tax profits for many companies, up 30% on their 2002 levels, so companies could afford to, and have, paid in more."

The research also found that around 60% of company pension schemes' assets were invested in equities, in line with 2002, although it added that many schemes were looking to reduce their exposure to equities over the long-term.