FTSE 100 DB pension schemes reach record £315bn of bond holding

11 April 2016

FTSE 100 defined benefits (DB) pension schemes have seen their bond allocation rise by circa £25bn to a record £315 billion in the year to 30 September 2015, according research by JLT Employee Benefits (“JLT”). This mainly driven by investment returns rather than new money allocated to bonds.

The average pension scheme asset allocation to bonds has increased from 56% to 59% in the year to 30 September 2015. Six years ago, the number was only 49%. A few companies reported very significant individual changes to investment strategies, with 11 FTSE 100 companies seeing their bond allocations altered by more than 10%. A total of 59 FTSE 100 companies have more than 50% of pension scheme assets in bonds.

The FTSE 100 companies with the greatest change in bond allocation were:

Name

Rank

Current Bond Allocation

Previous Bond Allocation

Switch to Bonds

Barratt Developments

1

75%

52%

+24%

Land Securities

2

82%

64%

+19%

Meggitt

3

64%

47%

+17%

Vodafone

4

64%

48%

+16%

Compass

5

77%

61%

+16%

The FTSE 100 companies with the highest allocation to bonds were:

Name

Rank

Assets £m

% of Assets in Bonds

Direct Line Insurance

1

 83

96%

Rolls-Royce

2

 12,934

92%

Fresnillo

3

 13

89%

Prudential

4

 8,067

88%

InterContinental Hotels

5

 113

87%

The FTSE 100 companies with the lowest allocation to bonds were:

Name

Rank

Assets £m

% of Assets in Bonds

Ashtead

96

 93

21%

Tesco

97

 9,677

19%

Merlin Entertainments

98

 28

18%

British Land

99

 139

2%

Hammerson

100

 62

0%

The total deficit in FTSE 100 pension schemes has risen by £7 billion to £73 billion over the year to 30 September 2015. Meanwhile, their total disclosed pension liabilities have risen from £591 billion to £614 billion.

Only 55 FTSE 100 companies are still providing more than a handful of current employees with DB benefits, ignoring companies who are incurring ongoing DB service costs of less than 1% of total payroll. Of these, less than a quarter (23) of the FTSE 100 companies 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.

Charles Cowling, Director, JLT Employee Benefits, comments: “The level of schemes’ bond holdings has reached a record high, which is good news in terms of lowered investment risks. It could also reflect greater prudence in trustees’ approach to risk management generally, which is very positive particularly as large deficits could tempt pension schemes to invest in higher growth, higher risk investments to make up for the shortfall.

“Despite some market commentators warning about bond overvaluation, the fact that pension bond holdings are at historical highs doesn’t seem to evidence it. But, whilst it is encouraging to see heightened cautiousness among pension schemes, greater bond holdings will likely put more pressure on companies to fund pension scheme deficits through cash contributions.

“Some pension schemes’ allocation to equities are surprisingly high, although the information publicly available in their accounts does not reveal the rationale for their investment strategies. Indeed the published reports reveal little detail of the significant activity there has been by many companies and trustees to use LDI (liability-driven investment) strategies to reduce investment risk. However while it is good to see evidence of pension schemes reducing investment risk, there is still a long way to go before the very significant risks still being run in pension schemes will cease to worry shareholders and pension scheme members alike.         

To read the executive summary of our report, click here.                                     

- ENDS -

Notes to Editors 

Enquiries:

Smithfield Consultants:

Fay Israsena | T: +44 (0)20 7903 0633| E: fisrasena@smithfieldgroup.com

Julia Cooke | T: +44 (0)20 7903 0674| E: jcooke@smithfieldgroup.com

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. www.jltemployeebenefits.com

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.

www.jlt.com
contact Charles Cowling
Director charles_cowling@jltgroup.com 0161 242 5388