The funding liabilities for FTSE 100 defined benefit (DB) pension schemes in the UK have risen to £705 billion at the end of December 2017 from £460 billion at the end of September 2017, according to research by JLT Employee Benefits.
JLT’s The FTSE 100 and their pension disclosures report, based on the IAS19 numbers disclosed in an organisation’s most recently published annual report and accounts, reported that only 19 FTSE 100 firms still provide a large proportion of its staff with a DB pension scheme, while 51 FTSE 100 companies provide a small number of its employees with DB benefits.
The report also found that contributions paid into pension schemes were £3.9 billion higher than the amount contributed in the previous accounting year, and surplus pension contributions paid in excess of the cost of benefits will reduce pension scheme deficits. However, where the contributions paid are less than the cost of benefits, this will increase pension scheme deficits or reduce pension scheme surpluses.
In total, the amount contributed to FTSE 100 pension schemes was £17.1 billion, up from £13.2 billion in the previous accounting year. This is more than the £6.5 billion cost of benefits accrued during the year, an increase on the previous year’s deficit funding of £5.9 billion.
It also reported that 41 FTSE 100 organisations could settle their pension deficits in full with a payment of up to one year’s dividend, seven would need a payment of up to two years’ dividends to settle their pension deficits in full, and 15 would need a payment of more than two years’ dividends in order to settle their pension deficits in full.
Charles Cowling, director at JLT said: “Deficits in 2017 have been gradually drifting downwards from their height in 2016 just after the Brexit vote. This is due to strong markets, despite all the political uncertainty; signs that interest rates are finally back on the way up; and news on the latest mortality tables showing that we are not living quite as long as we thought.
“This is good news as we move into 2018 and will give many [organisations] and pension schemes the opportunity to settle liabilities through buy-outs which are now more affordable than they have been for some time. As a result we expect a significant market in buy-out activity in 2018.”