FTSE 250 pension deficits reach £9 billion

The total deficit of FTSE 250 pension schemes as of 30 June 2012 is estimated to be £9 billion, up from £6 billion in 2011, according to research by JLT Pension Capital Strategies.

The FTSE 250 and their pension disclosures: a quarterly report found that deficit funding has increased in response from £1.3 billion to £1.5 billion in the last 12 months. Balfour Beatty is the largest single contributor at £102 million.

Only 65 firms still provide more than a handful of current employees with defined benefit (DB) pension scheme benefits. Only nine still provide benefits to a ‘significant’ number of employees.

The research also found:

  • The average pension fund’s asset allocation to fixed interest (bonds) has grown from 50% to 54%. This is compared with 48% in 2010 and 42% in 2008.
  • Nine FTSE 250 firms have altered asset allocations to bonds by 20% in the last 12 months.
  • The total disclosed pension liabilities of the FTSE 250 organisations have fallen from £73 billion to £63 billion. A total of 15 firms have liabilities of more than £1 billion, the largest of which is Invenys with £5.8 billion. A total of 160 organisations have liabilities of less than £100 million, of which 109 have no DB pension liabilities.

Charles Cowling, managing director of JLT Pension Capital Strategies, said: “With year-on-year pension deficits continuing to grow, by as much as 50% aggregate according to our research, the problems of ensuring adequate pension provision for employees remain for FTSE 250 companies.

“De-risking pension schemes continues at pace, with only a quarter of the FTSE 250 offering more than a handful of employees any form of DB and just 4% providing a significant provision. In addition, the trend for asset allocation to favour bonds accelerates.

“While these actions will ultimately result in lower pension scheme risk for FTSE 250 companies, the continued strength of the bond market and volatility of equities suggest that investment performance is unlikely to come to pension schemes’ aid in the medium term.”