The total deficit of FTSE 100 defined benefit (DB) pension schemes improved by £8 billion in 2012, according to research by JLT Pension Capital Strategies.
This found that the total deficit of FTSE 100 pension schemes at 30 December 2012 was estimated to be £50 billion.
It also found that the total disclosed pension liabilities of FTSE 100 companies have continued to rise. In 2012, this increased from £444 billion to £475 billion.
Last year also saw total deficit funding of £12.7 billion, up from £11.3 billion the previous year. BT led the way with a deficit contribution of £1.9 billion, while 63 other companies also reported significant deficit contributions in their most recent annual report and accounts..
Only 16 companies disclosed a pension surplus in their most recent annual report and accounts, while 71 companies disclosed pension deficits.
The research also found that the trend towards de-risking has continued. The average FTSE 100 pension scheme asset allocation to bonds now stands at 56%, up from 50% a year ago and 33% six years ago.
A number of companies reported significant individual changes to the investment strategies of their pension scheme. For instance, three FTSE 100 companies changed their bond allocations by more than 10%.
Charles Cowling, managing director at JLT Pension Capital Strategies (pictured), said: “While the overall deficit position of the FTSE 100 has improved slightly on the previous year, a £50 billion deficit still represents more than the whole 2013 UK defence budget and, consequently, it is imperative that companies continue to seek new ways of plugging these large funding gaps.
“What is clear is that the so-called ‘great rotation’ out of bonds into equities is a retail investment phenomenon and that the inverse rotation is very much at work across UK pension schemes.
“As yields continue their downward trajectory on the back of continued investor demand, despite the announcement from the Bank of England of no change to the quantitative easing programme, UK pension funds need to find a way to diversify away from traditional methods of risk-averse investment through corporate bonds and gilts.
“As a matter of urgency, the government must develop mechanisms that provide low-risk opportunities with an attractive yield; bond-like structures, such as asset-backed securities or special ‘infrastructure bonds’, which would benefit pension schemes at the same time as providing funding for much-needed private finance initiative (PFI) projects.”
