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Shell paid £3.3billion into its pension scheme last year

Footsie firms shell out over £17.5 billion into final salary pension schemes

By Ben Laurance
Last updated at 11:38 AM on 4th August 2010

Oil giant Royal Dutch Shell was the biggest individual contributor to its schemes, almost quadrupling payments to £3.3bn.
Britain’s biggest companies last year increased their payments into final salary pension schemes by an astonishing 50pc, a report reveals.

They pumped an unprecedented £17.5bn into funds in an attempt to ensure that they can finance payouts to employees after they retire.

The drive by companies to shore up their final salary schemes – combined with last year’s strong rise in share prices – meant that by the end of 2009, the total deficits of FTSE-100 companies’ pension funds had almost halved to £51bn, according to a study by actuaries LCP. A year earlier, the gap was £96bn.

The figures are based on pension fund liabilities given in balance sheets; the gap measured by pension trustees may be far higher.

Oil giant Royal Dutch Shell was the biggest individual contributor to its schemes, almost quadrupling payments to £3.3bn.

Lloyds Banking group, Royal Bank of Scotland and Unilever also paid more than £1bn each into their final salary or ‘defined benefit’ pension schemes.

Several high-profile companies are using assets other than cash to bolster their pension funds. Diageo has put whisky stocks into its schemes. Tesco, Sainsbury and Whitbread have all used property.

And there were eight companies which paid more into their pension schemes than they handed out to shareholders in dividends: BAE Systems, British Airways, Invensys, Lloyds, Morrisons, Rolls-Royce, Serco and Wolseley.

Many companies have changed the terms of their pension schemes in order to try to cut the amount they have to contribute. In 2009 alone, nearly a quarter of FTSE-100 firms announced changes to their final salary pension schemes.

The Government has recently announced that increases in pensions after retirement should rise in line with the consumer prices index (CPI) rather than retail prices index (RPI).

In most years, CPI rises more slowly than RPI, so annual increases in pensions will be lower than they would have been.

The shift will hit pensioners. But companies will gain, as their funds’ liabilities for future payouts will be smaller. LCP estimates that changing the index for pension increases could have reduced the total funding gap for all FTSE 100 companies by as much as £30bn if the new method had been adopted this year.

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