THE FTSE 100 AND THEIR PENSION DISCLOSURES

07 September 2015

EXECUTIVE SUMMARY

The total deficit in FTSE 100 pension schemes at 31 March 2015 is estimated to be £89 billion. This is a deterioration of £30 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 £6.5 billion, down from £7.3 billion the previous year. BT led the way with a deficit contribution of £0.8 billion (net of ongoing costs), but 56 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 15% in the last 12 months. There are a number of companies reporting very significant individual changes to investment strategies. Eight FTSE 100 companies changed their bond allocations by more than 10%. The average pension scheme asset allocation to bonds has increased from 55% to 60%. Six years ago, the average bond allocation was only 45%. There are a significant number of FTSE 100 companies where the pension scheme represents a material risk to the business. Six FTSE 100 companies have total disclosed pension liabilities greater than their equity market value. For BAE Systems, International Airlines Group, RSA and Royal Bank of Scotland, 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 £557 billion to £615 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 18 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 £615 billion to £735 billion, and the total deficit at 31 March 2015 would be around £170 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.

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