ITV could be set to make yet further proposals to change its struggling final salary pension plan following the release of performance figures which showed that the scheme is now in deficit by £538 million.

The company released its financial results for the half year ending 30 June 2009, showing that the previous funding shortfall of £178million has almost tripled in six months. This is despite ITV injecting £31million into the scheme over that period. Due to the drop, the company has been forced to consult over changes to the scheme.

On 27 July, the television broadcaster opened a consultation with members of its closed defined benefit (DB) scheme over possible changes. The firm has proposed that from January next year, future increases to DB members' pensionable salaries will be capped at a maximum of one per cent a year, even if increases to base salaries are higher than one per cent.

Richard Jones, a principal from consulting actuaries Punter Southall, said that ITV's increase in the deficit over the six months was equivalent to "around eight times the earnings before interest, tax, depreciation and amortisation (EBITDA) that ITV earned over the six month period."

Jones said rises in long-term inflation expectations in financial markets was the key driver in the increased deficit, rising from three per cent to 3.5 per cent per year over the last six months. He said that ITV's 15-year scheme duration could have increased the benefits payable by up to 7.5 per cent.

Charles Marandu, head of fiduciary manager, SEI, said that not only was the external environment difficult for ITV, but the pension fund was also now "wreaking its own special kind of havoc on the corporate finances".

"Pension schemes such as ITV could benefit from a more dynamic approach to risk management," he added.

"Cash injections to improve the funding position should be accompanied with targeted risk reduction in the scheme's asset allocation. An example could be using interest rate or inflation derivatives to compensate against further rises in liabilities."

Share Story: