The total deficit in FTSE 100 pension schemes at 30 June 2018 is estimated to be £1 billion. This is an improvement of £36 billion from the position 12 months ago.
Only 48 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 22 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 are a number of companies reporting very significant individual changes to investment strategies. 12 FTSE 100 companies changed their bond allocations by more than 10%.
The average pension scheme asset allocation to bonds has increased from 63% to 66%. Ten years ago, the average bond allocation was only 35%. In just ten years therefore, we have seen a shift from equity dominant investment strategies to bond dominant investment strategies.
There continues to be significant funding of pension deficits. Last year saw total deficit funding of £7.9 billion, down from £10.9 billion the previous year. 51 FTSE 100 companies reported significant deficit funding contributions in their most recent annual report and accounts.
36 FTSE 100 companies could have settled their pension deficits in full with a payment of up to one year’s dividend, 5 companies would need a payment of up to two years’ dividends to settle their pension deficits in full and 6 companies would need a payment of more than two years’ dividends in order to settle their pension deficits in full.
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 and Marks & Spencer total disclosed pension liabilities are almost double their equity market value.
Only 40 companies disclosed a pension surplus in their most recent annual report and accounts; 47 companies disclosed pension deficits.
In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have fallen from £710 billion to £683 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 22 companies have disclosed pension liabilities of less than £100 million, of which 13 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 £683 billion to £785 billion, and the total deficit at 30 June 2018 would be around £110 billion.
The appendix at the end of the report contains a full list of all the FTSE 100 companies analysed and their relevant pension disclosures.
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Charles Cowling, Managing Director | T: +44 (0) 161 242 5388 | E: firstname.lastname@example.org
Murray Wright, Consultant | T: +44 (0) 131 456 6868 | E: email@example.com