Actuarial valuation due for approx. 30 FTSE companies in 2015. Ultra low interest rates means they will likely have to hike their contributions.
3 May 2015: A number of FTSE 100 companies will be forced to increase their cash contributions to their defined benefits (DB) pensions schemes in 2015, says JLT Employee Benefits (“JLT”), one of the UK’s leading pension and benefits consultancies. According to JLT, companies whose actuarial valuation is due this year are likely to face demand for a higher contributions due to long term prospects of low interest rates.
Pension schemes are legally required to undergo an actuarial valuation regularly to determine whether the pension scheme has insufficient assets to pay scheme members. Around 30 FTSE 100 companies are scheduled to have their actuarial valuation in 2015, including Lloyds, Shell, BP, International Airlines Group (British Airways), HSBC and Aviva.
According to JLT’s report on FTSE 100 pension schemes, the total amount contributed in the latest accounting year amounted to £14.1 billion, down from £16.3 billion in the previous accounting year. This is more than the £5.9 billion cost of benefits accrued during the year. It therefore represents £6.9 billion of funding towards reducing pension scheme deficits, which is a decrease on the previous year's deficit funding of £9 billion. HSBC led the way with a deficit contribution of £0.5 billion (net of ongoing costs), but 55 other FTSE 100 companies also reported significant deficit funding contributions.
The total deficit in FTSE 100 pension schemes at 31 December 2014 is estimated to be £80 billion. This is a deterioration of £26 billion from the position 12 months ago. Only 20 companies disclosed a pension surplus in their most recent annual report and accounts among the 67 companies that disclosed pension deficits. Meanwhile, their total disclosed pension liabilities have risen from £534 billion to £545 billion. 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 £54 billion.
The average pension scheme asset allocation to bonds has very slightly increased from 56% to 57%. Six years ago, the average bond allocation was only 40%.
Charles Cowling, Director, JLT Employee Benefits, comments: “2015 is going to be another tough year for pension schemes – particularly those with triennial actuarial valuations. We expect to see some difficult negotiations between trustees and employers and inevitably there are going to be demands for increases (potentially significant increases) in employers’ funding contributions as pension scheme deficits continue to grow.”
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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.