JLT Pension Capital Strategies research: FTSE 100 pension liabilities improve to £32 billion

The total deficit of the FTSE 100 pension schemes totalled £32 billion at 31 March 2011, according to research by JLT Pension Capital Strategies. 

This amounts to an improvement of £36 billion on 12 months ago. The number of organisations disclosing a pension surplus has doubled from six to 12 in the 12 months to 31 March 2011.

However, The FTSE 100 and Their Pension Disclosures, report found that 72 FTSE 100 organisations disclosed pension deficits. The research shows that 20 organisations would have disclosed a pension surplus if they had a year-end of 31 March 2011, given asset appreciation during the second half of 2010.

The 12 months to 31 March 2011 saw a continued funding of pension deficits. The total deficit funding last year amounted to £11.0 billion, down marginally from the year before. HSBC led the way with a deficit contribution of £1.8 billion in its latest set of accounts.

The research found that defined benefit (DB) pension provision has continued to fall, with an approximated reduction of 20% over the last 12 months.

In a large number of FTSE 100 organisations have changed their investment strategy, and there are seven that have increased their bond allocation by more than 10% in the past 12 months alone.

In the last 12 months, the total disclosed pension liabilities of the FTSE 100 have risen from £410 billion to £451 billion. A total of 14 firms have disclosed pension liabilities of more than £10 billion, the largest of which is BT with disclosed pension liabilities of £43 billion.

The research also found that if pension liabilities were measured on a risk-free basis, the total disclosed pension liabilities of the FTSE 100 at 31 March 2011 would increase by 22% to around £550 billion, and the total deficit would be around £130 billion.

Charles Cowling, managing director of JLT Pension Capital Strategies, said: “The recent equity rally has not removed the pensions issue from the boardroom; almost 10% of FTSE 100 firms have pension schemes that represent a material risk to the business as at the end of March, in addition to 63 other organisations reporting DB scheme deficit positions.

“The flight into bonds continues, confirming that schemes are taking steps to reduce investment mismatching. We expect bond allocations, presently at 50%, to reach 75% within five years.

“Our research indicates that, despite FTSE 100 organisations continuing to pour money into their pension schemes in an attempt to narrow deficits, 2011 will be the year than sees the death of final salary schemes; in the past 12 months alone we have witnessed an underlying reduction in ongoing provision of 20%.”

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