Pension deficits set to rocket skywards following shock RPI decision
Pension deficits of FTSE 100 companies are likely to increase by at least a further £20bn, following the unexpected decision to leave the retail price index (RPI) unchanged.
The shock decision not to amend the RPI formula has led to expectations for a rise in inflation by up to 3 per cent. As a direct result, I fully expect this to increase FTSE 100 pension deficits by more than £20bn.
As at 31st December 2012, FTSE 100 companies had a combined deficit of just over £50bn. An extra £20bn on top of this is very alarming indeed.
Whilst Thursday’s announcement was good news for members of a strong final salary scheme, it piles on the pressure for companies with pension schemes linked to the RPI, many of which are already struggling with, and being held back by, ballooning and unsustainable pension commitments.
Smaller companies could even collapse due to the increased deficits that they are unable to fund.
The FT has further confirmed this potential issue for people with access FT
Nigel Green deVere Group
blog written 12th of January