JLT Pension Capital Strategies research: Fewer firms have high equity exposure in their pension schemes

IAG, BT and BAE Systems are among FTSE 100 firms with the highest equity exposure within their pensions schemes, according to research by JLT Pension Capital Strategies (PCS).

Despite finding that FTSE 100 firms with high equity exposure within their pension schemes fell by an average of 26%, The FTSE 100 and their pension disclosures report ranked organisations by their relative exposure to pension scheme equity allocations.

From highest, the firms include: IAG, BT, BAE Systems, Royal Bank of Scotland, Lloyds Banking Group, GKN, Smiths Group, RSA, National Grid, and ITV.

The total deficit of FTSE 100 defined benefit (DB) pension schemes had improved by £39 billion to £35 billion, at 30 June, but stock market turbulence in August has caused a rise of £30 billion to £65 million.

The figures are despite the deficit contribution injections by FTSE 100 firms of £10.8 million.

Charles Cowling, managing director at JLT Pension Capital Strategies, said: “It is becoming increasingly evident that the asset allocation of the UK’s largest firms’ pension schemes is affecting the attitude and actions of investors and analysts.

“While clearly not the single driving factor in recent share price falls, it appears that pension scheme equity allocations are viewed as an added risk factor for investors and are contributing to share price weakness.

“As deficits have rocketed in recent weeks, so too have investors taken heed of the potential drag that a large, risky pension scheme could have if equity markets continue to be unstable.

“FTSE 100 organisations have been making gallant efforts to reduce the deficits of their pension schemes and their exposure to equities over the last few years. This has seen a flight into bonds and significant closing down of DB pension schemes to new and existing employees.

“We envisage that the large majority of DB pension schemes will be closed to all employees within the next two years and the flight into bonds will continue so that, within five years, the large majority of pension schemes will be predominantly invested in bonds.”

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