£100 billion pensions hit to UK companies' balance sheets
New accounting standards requiring pension deficits to be recorded on the balance sheet could result in a £100 billion ($188 billion) hit to UK companies this year, says professional services firm Deloitte. Whether the change will result in a downgrading of companies' share prices will depend on the extent that pension deficits have already been factored in by the markets. Under new accounting standards*, UK companies will record the total deficit for final salary pension schemes in full on the balance sheet. For example, Deloitte actuaries estimate the total pensions deficit of FTSE 100 companies to be around £50 billion at the current time, whereas less than around £10 billion is currently booked in the accounts. Therefore, the FTSE 100 may need to provide for an extra £40 billion. Across all UK companies, the total hit could be as much as £100 billion.
The full impact of this adjustment may come as a surprise to the investor community. However, David Robbins, a consulting director at Deloitte, observes
"Fundamentally, it is only the accounting of the pension liabilities that is changing – the nature and timing of future pension cashflows should be independent of this change, and this information has largely been in the public domain for some time."