The trend for a decline in ongoing DB pension provision among FTSE 100 companies is gathering pace, according to research by JLT Employee Benefits. Ongoing DB pension provision have reduced by 13% to £7.2bn approximately in the 12 months to 30 June 2015, after allowing for the impact of changes in assumptions and market conditions.
Only 55 FTSE 100 companies are still providing more than a handful of current employees with DB benefits, ignoring companies incurring ongoing DB service costs of less than 1% of total payroll. Of these, less than a quarter of the FTSE 100 companies (23) are still providing DB benefits to a significant number of employees, defined as incurring ongoing DB service cost of more than 5% of total payroll.
The total deficit of FTSE 100 pension schemes has plunged to £78 billion, a deterioration of £19 billion over the year to 30 June 2015. Meanwhile, their total disclosed pension liabilities have risen from £577 billion to £614 billion.
There continues to be significant funding of pension deficits. Last year saw total deficit funding of £6.3 billion, down from £6.9 billion the previous year. BT led the way with a deficit contribution of £0.8 billion (net of ongoing costs), but 54 other FTSE 100 companies also reported significant deficit funding contributions in their most recent annual report and accounts.
There are a number of companies reporting very significant individual changes to investment strategies. Eleven FTSE 100 companies changed their bond allocations by more than 10%. The average pension scheme asset allocation to bonds has increased from 55% to 59%.
There are a significant number of FTSE 100 companies of which the pension scheme represents a material risk to the business. Five FTSE 100 companies have total disclosed pension liabilities greater than their equity market value. For International Airlines Group, BAE Systems and RSA, total disclosed pension liabilities are almost double their equity market value.
Only 25 companies disclosed a pension surplus in their most recent annual report and accounts; 63 companies disclosed pension deficits.
A total of 16 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell with disclosed pension liabilities of £62 billion. A total of 19 companies have disclosed pension liabilities of less than £100 million, of which 12 companies have no defined benefit pension liabilities.
Charles Cowling, Director, JLT Employee Benefits, comments: “We are seeing increasing evidence of the closing down of the UK’s Private Sector DB pension schemes. Even amongst FTSE100 companies, fewer and fewer are providing DB benefits to employees. Tesco, United Utilities and the Royal Mail are just a few more major employers recently looking to close the doors of their DB schemes to all employees for future benefit accrual.
“Changes in investment strategies also support this trend, with increasing evidence of end-game planning as LDI, pension buyouts and de-risking of pension schemes all become more prevalent.
“All this comes against a backdrop of significant reforms in UK pensions. Tax changes and the end of contracting-out, as well as soaring costs, are encouraging employers to look elsewhere when designing remuneration strategies for employees. Sadly, this does not bode well for long term retirement savings in the UK.”
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About JLT Employee Benefits
JLT Employee Benefits is one of the UK's leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial and pension consultancy, investment, Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) administration, flexible benefits, healthcare, benefit communication and financial education.
JLT Employee Benefits employs over 2,200 professionals throughout the UK and in 2013 had revenues of £172m in UK & Ireland.
Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc.
About Jardine Lloyd Thompson Group plc
Jardine Lloyd Thompson is one of the world's largest providers of insurance and employee benefits related advice, brokerage and associated services. JLT's client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.
JLT is quoted on the London Stock Exchange and owns offices in 39 territories with some 9,000 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.