The proportion of the UK's leading companies whose defined benefit pension scheme is in surplus is continuing to fall, JLT Pension Capital Strategies said today.
According to the consultancy's latest quarterly research, only 13 of the FTSE 100 companies would have disclosed a surplus if they had a year-end of December 31 2012, compared to 16 which reported a surplus in their most recent annual report and accounts.
Five FTSE 100 companies had total disclosed pension liabilities at the end of 2012 which were greater than their equity market value. These include International Airline Group, whose liabilities were almost five times their equity value, while BAE Systems and BT had disclosed liabilities more than double their market value.
JLT also found that scheme liabilities had continued to rise, up from £444bn to £475bn over the 12 months to the end of the year.
However, the total deficit of the FTSE 100's pension schemes fell from £58bn to £50bn - partly as a result of a rally in equity markets, but also because companies paid a combined £12.7bn into their DB pension schemes to help close the funding gap. Most significantly, BT made a deficit contribution of £1.9bn, but 63 other FTSE 100 firms also reported significantly deficit contributions in their most recent annual report and accounts.
Despite last year's equity rally, JLT also found that pension schemes were continuing to de-risk and move away from investments in stocks and shares towards bonds. The average pension scheme asset allocation to bonds at the end of the 2012 stood at 56%, compared to 50% at the end of 2011.
Three FTSE 100 companies reported they had changed the proportion of their assets invested in bonds by more than 10% over the year.
Charles Cowling, managing director of JLT, said the figures showed that pension schemes were taking the opposite approach to the retail investment sector, where the 'great rotation' had seen investors move out of bonds into equities.
'We could now be seeing the end of the George Ross-Goobey-led cult of pension scheme investment in equities, as the pressure to find high-yielding fixed-income investments mounts,' he said.
He added, however, that the continued fall in gilt yields meant UK pension funds needed to find a way to diversify further away from traditional methods of reducing risk by investing in corporate and government bonds.
'As a matter of urgency the government must develop mechanisms that provide low-risk opportunities with an attractive yield - bond-like structures, such as asset-backed securities or special "infrastructure bonds" which would benefit pension schemes at the same time as providing funding for much-needed private finance initiative projects,' Cowling added.
