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The Actuary The magazine of the Institute & Faculty of Actuaries

FTSE 350 pension deficit ‘doubled in 2011’

The total pension scheme deficit of the UK’s leading companies more than doubled last year, according to figures published today by JLT Pension Capital Strategies.


As of December 31 2011, the estimated deficit of firms on the FTSE 350 index was estimated to be £67bn, compared to £33bn a year earlier. In the past three years, the pension schemes of the FTSE 350 have gone from a surplus of £13bn to a £67bn deficit, despite the companies injecting £31bn of funding in total to close their scheme deficits.

JLT Pension Capital Strategies’ research shows total disclosed pension liabilities now standing at £513bn, with some pension funds representing a ‘material risk’ to the stability of the company.

Almost one in ten (34) of FTSE 350 companies have disclosed liabilities greater than the total equity value of the company, with 11 companies’ liabilities valued at over double the company’s equity value.

Charles Cowling, managing director of JLT Pension Capital Strategies said: ‘Increasing life expectancy and the current economic conditions facing the companies of the FTSE 350 have both contributed to the spiralling growth of liabilities outlined in our findings.

‘Indeed, if the oft-mooted idea of measuring pensions on a risk-free basis – using gilt-based discount rates rather than AA corporate bond discount rates – [is used] we estimate that the total FTSE 350 liabilities would rocket by more than £100bn and the total deficits would almost quadruple.’

He added: ‘Against this backdrop, we anticipate that the trend of pension liabilities being transferred to insurance companies via buyouts will accelerate.’

The impact of the eurozone crisis and regulatory change is continuing to drive companies out of equities and into bonds as they look to reduce risk in their pension schemes. According to JLT’s research, the use of bonds has  jumped from 33% to 50% over the past five years and over the past three years, 20 FTSE 350 companies have switched more than a quarter of their assets from equities into bonds.

JLT’s analysis come after Towers Watson published figures last week which indicated the total deficit of the FTSE 350 pension schemes had increased by 50% in the first two weeks of this month.

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