The credit crisis has eroded the value of investments so much that the deficit has jumped from £130 billion shortfall at the start of the year, the accounting firm Deloitte reported today. The gap is equal to about a quarter of the market capitalization of the U.K.’s benchmark FTSE 100 index.
“If pension funds had to rely purely on cash contributions from companies it could, at the current rate, take more than 50 years to clear the aggregate pensions deficit,” a Deloitte's spokesman said.
Companies may be forced to compensate for the losses by moving cash or other assets such as real estate into the funds, Deloitte said. Closing so-called final salary pension plans, which pay out a proportion of an employee’s ultimate salary, won’t eliminate the deficit, Deloitte added.
“Many companies are now looking to close their final salary pension scheme, but deficits will remain,” Deloitte said.
Employers are cutting back on pension benefits as the global financial crisis erodes profits and stock prices. BP Plc, Europe’s second-largest oil company, said last month it would close its final salary pension plan to new U.K. workers, and Barclays is asking 18,000 employees to give up similar benefits that the bank says have become too costly.