BA and 17 FTSE firms could 'benefit immediately' from CPI link

Around 18 FTSE 100 companies will ‘benefit immediately’ from the re-linking of final salary pension increases from the retail price index (CPI) to the consumer price index (CPI) according to consultancy Pension Capital Strategies (PCS).

PCS said companies with expectations of higher inflation or with large scheme deficits would be helped by changing inflation assumptions from the RPI to the lower CPI.

Winners include British Airways, which has a £3.7 billion deficit, which could save make a saving of 74% profits before tax.

The National Grid, operating with a £16 million liability, could save 19%, as could insurance company Aviva. Whitbread, would save 17% by adjusting its present inflation assumptions to CPI.

Rob Dales, director of PCS, said: ‘Businesses will be happier to link to the CPI than RPI, but many of their contracts will still refer to RPI linking so the change could take a long time to come through unless the rules are linked to statutory increases. So in the short term the change is more likely to effect the public sector.’

According to PCS the funding cost of pension schemes for FTSE 100 in 2009 was £11.6 billion, compared to the £7.3 billion cost of benefits accrued during the year.

Hence, there was an extra cost of £4.3 billion that was funding the reduction in pension scheme deficits. PCS believes this extra funding may not be necessary if CPI indexation becomes the norm.