The total deficit in FTSE 100 pension schemes at 31 March 2018 is estimated to be £33 billion. This is an improvement of £2 billion from the position 12 months ago.
Only 51 FTSE 100 companies are still providing more than a handful of current employees with DB benefits (i.e. ignoring companies who are incurring ongoing DB service costs of less than 1% of total payroll). Of these, only 23 companies(i.e. less than a quarter of the FTSE 100) 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).
There continues to be significant funding of pension deficits. Last year saw total deficit funding of £8.2 billion, down from £10.8 billion the previous year, with 53 FTSE 100 companies reporting significant deficit funding contributions in their most recent annual report and accounts. 5 FTSE100 companies paid more in pension contributions than in dividends to shareholders.
37 FTSE 100 companies could have settled their pension deficits in full with a payment of up to one year’s dividend, 6 companies would need a payment of up to two years’ dividends to settle their pension deficits in full and 8 companies would need a payment of more than two years’ dividends in order to settle their pension deficits in full.
There are a number of companies reporting very significant individual changes to investment strategies. 8 FTSE 100 companies changed their bond allocations by more than 10%.
The average pension scheme asset allocation to bonds has increased from 63% to 65%. Ten years ago, the average bond allocation was only 35%.
There are a significant number of FTSE 100 companies where the pension scheme represents a material risk to the business. 9 FTSE 100 companies have total disclosed pension liabilities greater than their equity market value. For BT, International Airlines Group, Marks & Spencer and Sainsbury, total disclosed pension liabilities are almost double their equity market value.
Only 39 companies disclosed a pension surplus in their most recent annual report and accounts; 51 companies disclosed pension deficits.
In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have fallen from £705 billion to £692 billion. A total of 18 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell with disclosed pension liabilities of£74 billion. A total of 18 companies have disclosed pension liabilities of less than £100 million, of which 10 companies have no defined benefit pension liabilities.
If pension liabilities were measured on a “risk-free” basis rather than using a AA bond discount rate, the total disclosed pension liabilities of the FTSE 100 would increase from £692 billion to £795 billion, and the total deficit at 31 March 2018 would be around £130 billion.
Charles Cowling, Managing Director | T: +44 (0) 161 242 5388
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Murray Wright, Consultant | T: +44 (0) 131 456 6868
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