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The Actuary The magazine of the Institute & Faculty of Actuaries

FTSE 100 firms continue to cut DB pension provision as costs rocket

Challenging economic conditions saw the total disclosed pension liabilities of FTSE 100 companies increase from £584bn to £705bn over the last 12 months.

Firms cutting DB pension provision / istock
Firms cutting DB pension provision ©iStock

That is according to research released today by JLT Employee Benefits (JLT), which shows that the UK’s largest listed firms continue to cut defined benefit (DB) pension provision as a result.

It was found that just 19 FTSE 100 firms now provide DB benefits to a significant number of employees, with provision estimated to have reduced by 15% over the last year.

“It is sad to see that we are now witnessing the final demise of DB pension schemes in the UK,” JLT director, Charles Cowling, said. “They have simply become too expensive.”

“A typical final salary pension scheme now costs employers more than three time the cost of 30 years’ ago, largely as a result of increased longevity and changing market conditions.”

It was found that nine of the top 10 companies with the highest ongoing DB service costs have now cut these significantly, including BP, BAE Systems and the Royal Bank of Scotland.

This comes after Tesco closed its DB pensions scheme in 2016, with Royal Mail in the process of doing the same.

However, the research highlights how the impact of pensions is not just reflected in the reduction of DB provision, but also in the extent to which schemes pose a material risk to companies.

It was found that 11 FTSE 100 firms had pension liabilities greater than their equity market value at 31 March 2017, with these differences most striking among International Airlines Group, BT and Sainsbury’s.

A total of 17 companies have disclosed liabilities of more than £10bn, the largest of which is Royal Dutch Shell with £73bn.

It was also found that 20 companies have liabilities of less than £100m, of which 11 do not have any.

“In previous cycles, it has been the smaller schemes that closed the door on future DB benefits – now it is the last few massive schemes that are closing down,” Cowling continued.

“Employees in DC schemes will cast a jealous eye on those still enjoying DB benefits, reflecting on how employers have had to channel the large part of their pension spend on propping up DB schemes.”

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