15 December 2015

A quarterly report from JLT Employee Benefits as at 30 June 2015


• The total deficit in FTSE 100 pension schemes at 30 June 2015 is estimated to be £78 billion. This is a deterioration of £19 billion from the position 12 months ago.

• Only 55 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 £6.3 billion, down from £6.9 billion the previous year. BT led the way with a deficit contribution of £0.8 billion (net of ongoing costs), but 54 other FTSE 100 companies also reported significant deficit funding contributions in their most recent annual report and accounts.

• The decline in ongoing DB pensions continues. We estimate that after allowing for the impact of changes in assumptions and market conditions, the underlying reduction in ongoing DB pension provision is approximately 13% in the last 12 months.

• There are a number of companies reporting very significant individual changes to investment strategies. Eleven FTSE 100 companies changed their bond allocations by more than 10%.

• The average pension scheme asset allocation to bonds has increased from 55% to 59%. Six years ago, the average bond allocation was only 49%.

• There are a significant number of FTSE 100 companies where the pension scheme represents a material risk to the business. Five FTSE 100 companies have total disclosed pension liabilities greater than their equity market value. For International Airlines Group, BAE Systems and RSA, total disclosed pension liabilities are almost double their equity market value.

• Only 25 companies disclosed a pension surplus in their most recent annual report and accounts; 63 companies disclosed pension deficits.

• In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have risen from £577 billion to £614 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 £62 billion. A total of 19 companies have disclosed pension liabilities of less than £100 million, of which 12 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 £614 billion to £735 billion, and the total deficit at 30 June 2015 would be around £165 billion.

The full report includes the following sections:

Funding position and commentary | Investment mismatching and commentary | Size of pension scheme and commentary | Significance of the pension scheme in the boardroom and commentary | Impact of the pension scheme on the company’s share price and commentary | Contributions paid into pension schemes and commentary | Appendix of full list of all the FTSE 100 companies analysed and their relevant pension disclosures

To request the full report, please contact us.

contact Charles Cowling
Director 0161 242 5388