According to figures from Deloitte, the final salary pension deficit of UK firms has fallen to £100 billion, which is a drop of £30 billion from the start of the year. The deficits of FTSE 100 pension plans have decreased to £52 billion, compared to £65 billion in January 2005. Deloitte have predicted that if the current rate of contributions is maintained, it will take around 15 years for these deficits to be cleared. It is thought that many firms will reduce their contributions to the pension protection fund, which could be as much as £10 million a year for the largest firms. From April 2006, the levy will become partly risk-based, with firms having to pay higher contributions for larger deficits.
Our view
A combination of improved investment performance and higher pension funding by employers is helping this minor recovery. We do not see this solving problems in the long term though. Employees do not pay enough themselves to warrant good pensions. Employers cannot afford huge contributions in the longer term and changes need to be made to encourage realistic employee and self employed contributions.