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UK Pensions '100bn in the red'

  BBC News

 March 4, 2003

UK companies are wildly over-estimating the value of their pension funds, investment bank Dresdner Kleinwort Wasserstein (DKW) has warned.

The bank suggested the UK's top 100 companies could have a combined pension shortfall of 100bn.

DKW blames the problem on overly optimistic assumptions about company investments in the stock market which have hidden the true extent of the black-hole.

And it warned that a number of firms will be forced to cut dividends and reduce their spending plans in order to top-up their funds.

Top-ups

Nick Seaward, head of the equities liaison team at DKW, told BBC Radio 4's Today programme that the cumulative pension fund deficit of the UK's FTSE 100 companies could be as much as 100bn.

"The problem has been that they've been assuming a much more optimistic return on their assets and pension funds in the last three years than has actually been happening," said Mr Seawood.

"They've been assuming a 10%-15% growth in the value of their fund.

"We think a realistic return would be more like 5.4%"

Mr Seawood used the example of the engineering group GKN, which yesterday reported strong operating profits.

"Most of that is being wiped out by the top-up they're going to have to make to their pension fund this year," warned Mr Seawood.

He suggested the group would be forced to inject about 53m to sustain its pension fund this year, compared to a top-up of 33m in 2002.

And the jet engine maker Rolls Royce warned on Tuesday that its pension fund deficit had reached 1.1bn.


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