The total deficit in FTSE 100 pension scheme has declined by £14 billion to £66 billion in the last year, while liabilities have increased by £44 billion to £591 billion, according to research by JLT Employee Benefits (JLT).
The research also found that the number of FTSE 100 organisations that incur ongoing defined benefit (DB) scheme service costs totalling more than 1% of payroll has decreased from 65 to 56 in the last year,
Of the 100 employers polled, less than a quarter (24) are still providing DB benefits to 5% or more of their workforce, with employers such as supermarket chain Tesco having closed their schemes.
A total of 16 organisations disclosed pension liabilities of over £10 million, while 21 disclosed liabilities of more less than £100 million.
In total, the amount contributed to FTSE 100 pension schemes was £14.6 billion, down from £15.7 billion in the previous accounting year, which is more than the £5.8 billion cost of benefits accrued during the year.
This, therefore, represents £8.8 billion of funding towards reducing pension scheme deficits; a decrease on the previous year’s funding of £8.9 billion.
Several organisations and trustees are continuing to switch pension assets from equities and into bonds, with BG Group the latest organisation to do so.
The oil and gas organisation reported bond accelerations increasing by 22%.
A total of 58 of FTSE 100 employers have over 50% of pension scheme assets invested in bonds, and the average pension scheme asset allocation to bonds has increased from 55% to 56%.
Charles Cowling, director, JLT Employee Benefits, said: “Although DB pension funds have some decent investment performance, the benefit has been outweighed by a higher increase in liabilities, caused by continued falls in inflation rates, thus leading to an increase in pension deficits.
“This environment is expected to continue into 2015 and beyond, maintaining a funding pressure on pension schemes.
“It is with no surprise that fewer and fewer FTSE 100 organisations are offering DB pension benefits, as the risks and costs associated with their provision become too great to bear.
“Whilst closing a scheme outright will not necessarily make an impact on the pension liabilities already accumulated for organisations, it will limit their future growth.
More organisations are also taking steps to manage and reduce their DB liabilities through a number of de-risking strategies.
“In particular, the newly introduced pension flexibilities in DC schemes coming into effect in April mean we expect to see many members transfer their DB pensions into DC funds, giving relief to organisations with large DB liabilities.”
