FTSE 100 pension deficits at £43bn

Pension deficits in the FTSE 100 stood at £43 billion at 30 June 2013, compared to £42 billion in 2012, according to research by financial and actuarial consultancy Lane Peacock and Clark (LCP).

Its 20th annual Accounting for pensions report provides an analysis of FTSE 100 defined benefit (DB) pension schemes and examines the ways in which companies are managing their pension issues.

The report found that FTSE 100 companies are increasingly looking for alternatives to cash funding for their pension schemes. In 2012/13, companies have invested in everything from cheese (Dairy Crest) to whisky (Diageo) and aircraft (International Airlines Group), while other companies granted their schemes a charge over assets, such as power stations (Centrica), hotels (Intercontinental Hotels Group) and machinery (Rexam).  

It also found that 39 FTSE companies now only offer defined contribution (DC) pension schemes. During 2012, seven further companies either closed, or proposed closing, their schemes to future accrual, including HSBC and Kingfisher.

This leaves 61 FTSE 100 companies with DB schemes open to future accrual. This number is expected to fall further as companies review their options when contracting out ceases in 2016.  

The research also found:

  • The total deficit remains high in spite of £21.9 billion in company contributions.
  • The overall level of cover sits at 91%, which is in contrast to 20 years ago when the average FTSE 100 pension scheme’s assets were sufficient to cover 120% of liabilities.
  • The increased allowance for life expectancy has pushed up FTSE 100 companies’ disclosed pension liabilities by some £40 billion, a figure that compares closely to the overall deficit of £43 billion.

Bob Scott, partner at LCP and author of the report, said: “Pension planning continues to be blighted by seemingly constant regulatory and legislative change. 

“In the past 12 months alone, we have seen the introduction of auto-enrolment, the announcement of a flat-rate state pension and the end of contracting-out, and further changes to the IAS19 accounting standard. 

“Is it any wonder that the past 20 years have seen traditional final salary pension schemes phased out to be replaced largely by lower-quality defined contribution schemes?

“Compared to 20 years ago, the typical FTSE-100 company now makes a considerably more detailed and informative pensions disclosure in its annual accounts. 

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“With pension liabilities approaching £0.5 trillion, and with constant legislative changes, many companies will be hoping that, in 20 years’ time, they have managed to completely remove any pensions risk from their balance sheets. 

“This may be good news for their shareholders, but is unlikely to improve the lot of those employees who are relying on good workplace pensions for their retirement.”