THE FTSE 100 AND THEIR PENSION DISCLOSURES

02 May 2017

A quarterly report from JLT Employee Benefits

EXECUTIVE SUMMARY

  • The total deficit in FTSE 100 pension schemes at 30 September 2016 is estimated to be £105 billion. This is a deterioration of £32 billion from the position 12 months ago.
  • Only 54 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 £6.6 billion, up from £5.9 billion the previous year. BT led the way with a deficit contribution of £845 million (net of ongoing costs), but 48 other FTSE 100 companies also reported significant deficit funding contributions in their most recent annual report and accounts.
  • 44 FTSE 100 companies could have settled their pension deficits in full with a payment of up to one year’s dividend, 9 companies would need a payment of up to two years’ dividends to settle their pension deficits in full and 7 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.
  • 2 FTSE 100 companies changed their bond allocations by more than 20%.
  • The average pension scheme asset allocation to bonds has increased from 59% to 61%.
  • Ten years ago, the average bond allocation was only 34%.
  • There are a significant number of FTSE 100 companies where the pension scheme represents
  • a material risk to the business.
  • 8 FTSE 100 companies have total disclosed pension liabilities greater than their equity market value. For International Airlines Group, the total disclosed pension liability is almost triple its equity market value. For BAE Systems the total disclosed pension liabilities are almost double their equity market value.
  • Only 28 companies disclosed a pension surplus in their most recent annual report and accounts; 60 companies disclosed pension deficits.
  • In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have fallen
  • from £614 billion to £590 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 £57 billion. A total of 21 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 £590 billion to £705 billion, and the total deficit at 30 September 2016 would be around £215 billion.

The appendix at the end of this report contains a full list of all the FTSE 100 companies analysed and their relevant pension disclosures.

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

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Report authors:

Charles Cowling, Managing Director | T: +44 (0) 161 242 5388 | E: charles_cowling@jltgroup.com

Murray Wright, Consultant | T: +44 (0) 131 456 6868 | E: murray_wright@jltgroup.com

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