FTSE 350 pension deficit decreases

The pension deficits of the FTSE 350 reduced from £115 billion at 31 July 2012 to £58 billion at 31 July 2013, while aggregate market caps increased from £1,800 billion to £2,100 billion over the same period, according to research by Hymans Robertson.

Its annual FTSE 350 pensions analysis report found that the majority (90%) of FTSE 350 companies have a pensions deficit of less than 10% of their market cap.

This is the first time in five years that no FTSE 350 company has had a pension deficit that exceeds its market cap.

Clive Fortes (pictured), head of corporate consulting at Hymans Robertson, said: “FTSE 350 companies do not have an overwhelming pension deficit problem. The schemes are now at their most manageable level since the credit crunch and, on the whole, sponsoring employers are in a good position to support them.

“However, the focus on pension deficits and, in particular, the speed by which they are cleared, is driving companies to ignore the risks. Pension risk is asymmetrical. Companies cannot readily access any surplus but have to fund any deficit. 

“For this reason, we believe that it is preferable for companies to focus on risk management in conjunction with a gradual (and extended) plan to achieve full funding.”

Alistair Russell-Smith, consultant at Hymans Robertson, added: “Some schemes are starting to reassess their priorities and look at de-risking. Given current market conditions, there are a number of options that look to be good value.

“Longevity risk is an area of increasing interest, whether through buy-ins or longevity swaps, while forward interest rates beyond 10 years look attractive at close to their long-term average levels.

“Now could also be a good time to lock into gains on growth assets such as equities.”