UK finance giant under burden of pension gap

Royal Bank of Scotland Group, subject of the world’s biggest bank bailout, has the largest pension deficit relative to its market value out of U.K. finance firms in the FTSE 350 index, according to a report.

RBS’s pension deficit is 69 percent of its market value, higher than any other financial firm among Britain’s 350 leading companies, Hymans Robertson, a London-based pension consultant, said on Tuesday. The firm’s calculations stripped out short-term reductions in plans’ liabilities caused by the financial crisis.

“It’s an extra burden on RBS to recover from the financial crisis,” said Clive Fortes, head of corporate consulting at Hymans Robertson. “Not only does it have to recover its business operations, it also has to recover its pension scheme.”

The financial crisis coupled with longer life expectancies has squeezed U.K. pension funds over the last two years. The government-sponsored Pension Protection Fund, which takes on plans’ liabilities if companies fail, said 75 percent of defined-benefit schemes were in deficit in January, with aggregate deficits of 200 billion pounds ($301 billion).

About 400 billion pounds of shareholders’ funds in the FTSE 350 are at risk from being used to fund pension deficits, the study said.

Financial firms including RBS, Legal & General Group and Lloyds Banking Group have capped pensions for final salary plan members while Barclays said in June it would close its pension program. Aviva, the insurer that last week disclosed that its pension-plan deficit doubled to 1.7 billion pounds in 2009, and Barclays were tied with the second-biggest pension deficits relative to their market value among financial firms, Hymans Robertson said.

Pension plans should “make sure the risks they take are different to the risks on their sponsoring companies’ balance sheets,” Fortes said. Financial firms “were hit on both sides during the crisis.”