Commuters walk to work over Westminster Bridge in central London on April 4, 2006.TOBY MELVILLE/Reuters
Britain's biggest companies are at risk of seeing sharp increases in the deficits of their pension schemes by failing to lock in recent market gains by moving into less risky investments, according to a report.
Over the last eight months, assets held by defined benefit schemes of FTSE 100 companies have increased by £29-billion, while liabilities have fallen £25-billion, consultancy PensionsFirst said on Monday.
This has narrowed the funding deficit by £54-billion to £80-billion as investments in higher risk assets such as stocks, private equity or hedge funds, paid off.
But the report warns that the schemes are missing the chance to "de-risk" and could repeat the mistakes of 2008 when they squandered a similar run of growth only to slip into deficit during the turmoil of the financial crisis.
"It is worrying to think that many (schemes) are leaving themselves open to this happening again," said PensionsFirst Chief Executive Benjamin Reid.
If a pension deficit widens, the company could be forced to fund the shortfall and prop up obligations to its retired employees, which in turn hits profits.
Lower risk investments could include certain government and corporate bonds.