The biggest British companies in UK may see their pension scheme deficits widen because of the failure to book profits from the recent market gains and move the funds to less risky investments, a report published on Monday warned.
In its report released today, consultancy PensionsFirst said over the last 8 months the value of assets held by defined benefit schemes of FTSE 100 companies have jumped by £29 billion and the liabilities have shrunk by £25 billion.
The combined gain of £54 billion came from more risky investments such as hedge funds, private equity or stocks. The total deficit hence has come down to £80 billion.
Citing a similar situation that occurred before the global financial crisis had hit in 2008, the report says the schemes are frittering away a chance to ‘de-risk’ their investments and benefit from a favourable growth run.
PensionsFirst chief executive Benjamin Reid said: “It is worrying to think that many (pension schemes) are leaving themselves open to this happening again”.
Ideally they should park the funds in some lower risk investments such as corporate or government bonds. As the deficit widens, companies need to fund them which straightway affects their profits.