Pension deficits of FTSE 350 UK firms rose by £12bn in last year

The combined pension deficit of UK companies climbed by £12bn last year, according to research released today.

Research by Barnett Waddingham has found the aggregate pension deficit of FTSE 350 firms is now £62bn, which amounts to 70 per cent of pre-tax profits for the year (£88.9bn).

The firm said deficit levels were now higher than they were immediately after the financial crisis.

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The pension deficits of UK companies have been rising since 2011, when the total deficit stood at £54.5bn, and represented 25.4 per cent of total profits.

However, Steve Webb, director of policy at Royal London, said that in the context of deficit movements, £12bn represented a “fairly modest change”, and said firms should “not panic”.

“These deficits do go up and down by this amount in a month,” he said. “But clearly [companies] need a long-term plan and need a balance between deficits and dividends.”

He said companies should not stop paying out dividends but that executives may need to re-balance their focus onto pension deficits.

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Nick Griggs, partner at Barnett Waddingham, said: “It is also worth bearing in mind that if equity returns continue at the levels seen in the last few years, long-term interest rates rise more than expected and longevity increases do not provide any nasty surprises, the pension deficit problem could solve itself.

“We must remember that the deficit is essentially the difference between two much bigger numbers and a few gentle economic triggers could completely change the picture.”