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FTSE 100 ON TRACK TO WIPE OUT PENSIONS DEFICIT BY END OF 2004

LONDON: 17 FEBRUARY 2004 - The FTSE 100 remains on course to wipe out its overall pensions deficit by the end of 2004, according to updated analysis by Aon Consulting of consensus bond and equity market forecasts from leading UK investment banks¹.

Updating analysis released in October 2003 to take into the latest investment bank estimates, Aon Consulting research suggests that the overall pensions deficit for the FTSE 100 is forecast to fall from £65 billion in December 2003 to £40 billion in 2004. This is based on the consensus view among the City institutions surveyed that the equity market will rise to 4725 points and bond yields will edge up to 5.9%. If corporate bond yields rise to 6.5% by the end of December 2004 and the market hits 4725, Aon Consulting predicts that the current overall pensions deficit for FTSE 100 companies should be almost wiped out by year-end 2004.

Paul McGlone, principal and actuary at Aon Consulting, said: "Our retrospective analysis of the investment banks consensus forecasts indicates that the FTSE is continuing to rise at a rate quite close to that predicted in 2003. This, coupled with an overall fall in bonds, bodes well for pension schemes and we would remain cautiously optimistic that FTSE 100 pension deficits could be wiped out by the end of 2004.";

Ian McKinlay, of Aon Consulting's Investment Consulting Practice added: "However, each individual pension scheme needs to be aware of the fact that high exposure to equities brings with it a significant level of risk. For instance, we're finding that investment analysts are using pension scheme risk exposure as a means of differentiating between companies they favour. One way of addressing this is to invest in assets that are more closely aligned with a pension scheme's liabilities. These help to align the investments with the liabilities to effectively offset those risks."

Alternative scenarios that would also see the overall pensions deficit of the FTSE 100 wiped out include a rise in the FTSE 100 to 5600, or an increase in corporate bond yields to 6.3 percent and a rise in the FTSE 100 to 5000.

 
Note to Editors:
1. Based on estimates by Morgan Stanley that the pensions deficit of FTSE 100 companies was £ 65 billion at the end of 2002, Aon Consulting used this figure and the average asset allocation to project the assets and the liabilities of the FTSE 100 companies' pension fund assets and liabilities to the end of 2004.

About Aon Consulting
Aon Consulting is a leading human capital consultancy, helping organisations of every size to attract and keep the employees they need. We advise on all aspects of employment, including health-related insurance and risk; employee compensation and pensions; human resource strategy planning; job design and change management; and staff assessment and legal issues.

Aon Consulting is a division of Aon, the UK's largest insurance broker and provider of risk management services, a major force in reinsurance and the UK human capital consulting market.

Aon Consulting Limited is authorised and regulated by the Financial Services Authority.

 

Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.

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