FTSE 100 pension liabilities grow £95 billion despite increased funding

29 August 2017

The total cost of pension liabilities at FTSE 100 listed companies grew £95 billion in 2016*, from £586 billion to £681 billion, despite firms barring new employees from their defined benefit (DB) schemes and increasing funding by more than £4 billion, according to research by pension and benefits consultancy JLT Employee Benefits.

A total of 16 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell, with liabilities of £73 billion.

10 FTSE 100 companies now have total disclosed pension liabilities greater than their equity market value. For International Airlines Group, total disclosed pension liabilities are triple its equity market value of £8 billion while for BAE Systems total disclosed pension liabilities are almost double its £18.6 billion equity market value.

Changes in economic conditions, increasing life expectancy and ever more aggressive pension regulations have contributed to the spiralling growth in pension liabilities over the last few years.

Many companies are reacting to these pressures by closing pension schemes to future and even current employees. However, JLT says that this is having little to no impact on reducing liabilities. After allowing for the impact of changes in assumptions and market conditions, JLT estimates that ongoing DB pension provision fell approximately 12% in 2016.

Only 53 FTSE 100 companies are still providing more than a handful of current employees with DB benefits, while less than a quarter of the FTSE 100 is still providing DB benefits to a significant number of employees (defined as incurring ongoing DB service cost of more than 5% of total payroll).

In the 12 months to 31 December 2016, £17.6 billion was poured into FTSE 100 pension schemes (overall, as opposed to just to fill the deficit), up from £13.3 billion in the previous accounting year.

FTSE 100 firms are continuing to battle significant deficits, with the total deficit in FTSE 100 pension schemes at 31 December 2016 estimated to be £87 billion, up from £17 billion a year earlier.

According to JLT’s research, only 24 FTSE 100 companies disclosed a pension surplus in their most recent annual report and accounts, while 66 companies disclosed pension deficits. Those with the best funding positions are Royal Mail, which is running a 93% surplus, while the worst funded pension scheme is TUI, which is running a 35% deficit.

Commenting on FTSE 100 companies’ struggle to reign in their pension liabilities, Charles Cowling, Director, JLT Employee Benefits, says: “Times and markets are still very difficult for many companies. DB pension deficits remain stubbornly high despite all the extra contributions that have been paid and the latest mortality tables showing reductions in life expectancy – and hence a reduction in pension liabilities. This report shows that the trend of DB closures continues at the UK’s largest companies and we expect that defined benefit pension schemes will have all but disappeared from the private sector within the next year or so.

“Our research also highlights the impact of a technical change to the accounting standards for pension disclosures in company accounts. IFRIC14 is an important part of the IAS19 framework and provides guidance on the recognition of surpluses and the impact of trustee funding requirements. This standard is currently being reviewed by the IASB and the proposed changes could have huge implications for UK companies, potentially increasing their pension liabilities by tens of £billions. RBS, for one, has already anticipated these changes by including an “irrecoverable surplus” of £5.3billion, showing a massive increase in its IAS19 provision.”

Download the FTSE100 and their pension disclosures report.

*all data is 12 months to 31 December 2016; latest data available

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ENQUIRIES:

JLT

Corinne Gladstone, PR Manager, JLT Group | T: +44 (0)20 7895 7705 | M: +44 (0)7799 340658 | E: corinne_gladstone@jltgroup.com

NOTES TO EDITORS:

About Jardine Lloyd Thompson

Jardine Lloyd Thompson is one of the world’s leading providers of insurance, reinsurance 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 41 countries with more than 10,600 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.

For further information about JLT, please visit our website www.jlt.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, pension and investment consultancy, wealth management, flexible benefits, healthcare, benefit communication and financial education.

JLT Employee Benefits employs over 2,200 professionals and in 2016 had revenues of £160 m 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