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  • January 2014
01

Top firms' DB deficits still 'stubbornly high', says JLT

Open-access content Friday 3rd January 2014 — updated 5.13pm, Wednesday 29th April 2020

FTSE 100 companies’ defined benefit pension deficits for remain ‘stubbornly high’ at £57bn at the end of 2013 despite strong equity markets and a surge in cash contributions from sponsoring employers, according to a report

Pension experts JLT Employee Benefits said most of these improvements experienced had been cancelled out by the sharp increase in inflation expectations earlier in the year. 

The deficit for all UK-private sector pension schemes fell from £172bn to £150bn in the last year, the firm said. Total assets stood at £1,133bn, with total liabilities of £1,283bn, when measured using IAS19 accounting rules.

JLT director Charles Cowling said: 'Fortunately there has been some good news. Increases in gilt yields since April have led to lower values being placed on liabilities which will reduce deficits for schemes with more recent valuation dates. This should help to reduce cash contribution requirements for recovery plans being agreed in the New Year.

'In the last five years, since the financial crisis, the equity market has performed strongly with the FTSE 100 up 52% since December 31 2008, but for pension schemes there has been no such cheer with the total deficit in the pension schemes of FTSE 100 companies up by £71bn over the same period.'

He said employers will continue to remove pension risk from their balance sheets through a variety of methods including pensioner buy-ins, longevity swaps and further closures to future accrual.

2014 was likely to bring more of the same, Cowling added.

'It is not clear how markets will react as the UK economy continues to strengthen. Counter-intuitively, a stronger economy may lead to increased insolvencies and debt compromises as the banks take the opportunity to realise cash where it is available.'

He urged employers to closely monitor their pension scheme risks and be in a position to take advantage of any opportunities as they arise.

This article appeared in our January 2014 issue of The Actuary.
Click here to view this issue
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