- Defined benefit pension provisions fall further as FTSE 250 pension liabilities reach a record £86 billion
The decline of defined benefit (DB) pensions continues due to the hefty ongoing spend and service costs, with only 11 FTSE 250 companies still providing DB benefits to a significant number of employees, according to research by JLT Employee Benefits (JLT EB).
Many companies have taken the decision to close their DB pension schemes to future accrual in an attempt to curb pension liabilities. However, JLT EB’s report shows that this has had little impact due to Quantitative Easing, ultra-low interest rates and increasing life expectancy. In the last 12 months, JLT EB found that the total disclosed pension liabilities of the FTSE 250 has increased by 21% from £71 billion to £86 billion, with 27 companies disclosing more than £1 billion in pension liabilities.
Charles Cowling, Director for JLT Employee Benefits, said: “Ibstock is the most recent example of the continuing trend for DB schemes closure among the FTSE 250, having recently announced a consultation with staff to close its DB scheme to future accrual for all active members. The phrase ‘managed decline’ has become synonymous with the gradual phasing out of DB pensions and unfortunately this narrative may continue. It now appears likely that DB pension accrual in the FTSE 250 will be almost completely stopped by the end of the year.”
Lower investment risk also remains a priority in the management of pension scheme deficits as the average FTSE 250 pension scheme asset allocation to bonds has reached 55%, an increase on last year’s figure of 52%. This compares to 48% five years ago. A number of companies reported significant individual changes to investment strategies, with 11 companies changing their bond allocations by more than 10% in the last twelve months. However, there has also been a few pension schemes that have recently reduced their bond holdings. Bovis Homes is the latest company to report a big switch, with bond allocation decreasing by 27%.
The total deficit in FTSE 250 pension schemes is estimated to be £11 billion at 31 December 2015. This is an improvement of £1 billion from the position 12 months ago.
Only 37 companies disclosed a pension surplus in their recent annual report and accounts; 95 companies disclosed pension deficits. However, JLT EB estimates that 40 companies would disclose a surplus if they had a year-end of 31 December 2015.
 defined as incurring ongoing DB service cost of more than 5% of total payroll; data as at 31 December 2015
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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.