The report reveals that the dramatic €120 billion rise comes despite those companies having made record scheme contributions over the past year.
Alex Waite, partner and head of LCP Corporate Consulting, commented: "The year ahead looks like it may well bring one burden too many for European pension schemes. Pressure to deal with new pensions accounting under IAS19, volatile markets and regulatory uncertainty are likely to lead to further pressure for organisations to reform pension plans in every one of the many countries where our clients operate.
"Going into 2011 the world's largest 100 companies disclosed pension deficits of €170bn. To put that in perspective, it's equivalent to the cost of the Greek bailout. And as 2011 has proved, just because it's bad at the start of the year, doesn't mean it can't get worse. In last year's European Pensions Briefing we estimated that a one-in-ten-chance outturn could increase deficits by €100bn or more. In fact, over the year so far, the combined deficit has increased by over €120bn."
The threat of regulatory risk looms large for pensions across Europe. The real prospect of the application of Solvency II-type principles to pensions is likely to call into question the rationale and sustainability of defined benefit plans in many European locations.
And new pension accounting rules could present additional risks for multinationals at a time of severe economic crisis. For many companies, the new disclosure information required under IAS19 will be required from an effective date of year-end 2011.
Phil Cuddeford, Partner at LCP and co-author of the report, said: "Analysts, lenders and shareholders will take a long hard look at companies' 2011 annual report and accounts in the light of the new accounting changes. Those that have taken steps to manage pension risks will send a clear and confident message to the markets. Those that haven't may well find that they are judged harshly by markets and lenders increasingly concerned about pension risks."
The three main changes under IAS19 are:
No more 'corridors': This will be a particular issue for Dutch companies and would reduce shareholder equity - for those companies in the survey who currently use the corridor method - by about €16bn, potentially affecting loan covenants.
No more 'expected returns': This will decrease the profits of 66 of the FTSE Global 100 by a total of €14bn.
Increased disclosure: new disclosure requirements will accompany the introduction of a principles-based approach.
Phil Cuddeford concluded: "The good news is that there's plenty that companies can do to prepare for the challenges ahead. De-risking through cutting benefit accruals, de-risking investment strategies, offering members the option to leave schemes and using insurance-based solutions such as buy-outs and buy-ins are all ways to batten down the hatches for the storm ahead."
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