FirstGroup has largest DB pension liability among FTSE 250

FirstGroup has one of the largest defined benefit (DB) pension scheme liabilities among employers in the FTSE 250, according to research by JLT Employee Benefits.

First Group

The FTSE 250 and their pension disclosures report found that the travel operator’s scheme is a risk to the business due to pension liabilities of £4.6 billion, as of 31 December 2014. This is almost four times more than the value of the business.

However, the organisation has £1.9 billion of scheme deficits which relate to the industry-wide Railway Pension Scheme (RPS).

A spokesperson at FirstGroup said: “The research doesn’t tell the full story of our pension arrangements, because it excludes the assets in our pension schemes. Our net pension deficit in the 2014/15 financial year was £239.4 million.

“Furthermore, it is important to note that our rail companies pay into the Railways Pension Scheme and FirstGroup has no terminal liability connected to that scheme.

“The market value of the assets at 31 March 2015 for all defined benefit schemes totalled £4.145 million, while at the same date, the net present value of liabilities under the schemes (after RPS adjustments and others) was £4,385 million, for a net deficit to the group of £239.4 million.”

The research found that Phoenix Group (£3.4 billion), Balfour Beatty (£3.2 billion), Rexam (£3.2 billion), Carillion (£2.5 billion) and Stagecoach (£2.3 billion) are among other FTSE 250 employers with the largest pension scheme liabilities compared to equity value.

Overall, a total of 17 FTSE 250 firms have schemes that dwarf their market value, providing a material risk to their businesses.

However, only 12 organisations, just 5% of the FTSE 250, still provide DB benefits to a significant number of employees.

Total pension schemes deficits are estimated to stand at around £12 billion, a decline of £5 million from the previous 12 months.

Last year saw total deficit funding of £1.4 billion, up from £1.2 billion from 2013, with Phoenix Group leading the way with a deficit contribution of £100 million.

Employers are continuing to take steps towards decreasing DB costs.

In April, Tesco took steps towards ending its DB scheme to future accrual, while Morrisons has also consulted on the closure of its scheme.

Manx Telecom has also closed its DB scheme in an attempt to curtail deficits.

Charles Cowling, director at JLT Employee Benefits, said: “With this year’s introduction of the new freedom and choice changes for defined contribution schemes and with next year’s cessation of contracting-out, and the creation of a new single-tier state pension, any remaining reasons to hang onto DB pension provision in the private sector have all but disappeared.

“DB pensions have become too expensive, too risky, and among UK private sector organisations, are no longer part of HR strategies for employee recruitment and retention.

“Sadly, we expect that within 12 months virtually all DB pension provision in UK organisations will have ceased.”