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Pension schemes deficit is reduced by £16bn

The total deficit in FTSE 100 pension schemes is estimated to have fallen by £16 billion to £60bn in the year to March 31, according to a study that has also highlighted the major burdens that companies including Royal Bank of Scotland are carrying.

Research from JLT Employee Benefits (JLT) published yesterday found that the total deficit dropped by 21 per cent even though total deficit funding fell to £7.7bn in the period from £10.5bn a year previously.

All in all, 62 FTSE businesses reported considerable deficit funding contributions in their latest annual filings, with HSBC achieving the greatest contribution of £500 million, net of ongoing costs.

The report also found FTSE 100 companies' total disclosed pension liabilities jumped to £557bn from £515bn, with 15 firms exceeding more than £10bn and Royal Dutch Shell racking up the highest amount at £54bn.

JLT attributed the spiralling growth in overall liabilities to changing economic conditions, as well as extended life expectancy.

Director Charles Cowling said: "The top 10 pension schemes by liability make up one quarter of total private sector UK pension scheme liabilities.

"This poses challenges for the Pensions Regulator, which in its latest statement on pension scheme funding suggests it is going to pay even closer attention to those pension schemes that represent the biggest risks."

Some FTSE firms' pension schemes present a material risk to their business, JLT said, with Cowling stating that liabilities can significantly affect corporate decision-making. Although he noted that their importance in the boardroom was dependent on the relative size of the pension scheme.

He also addressed the major impact of defined benefit schemes, and said that while provision for this kind of pension continued to fall overall, companies trying to reduced pension liabilities by barring new entrants from joining such schemes had had minimal impact on deficits due to tough economic conditions.

For RBS, for example, the cost of providing defined benefit has increased to £372m from £367m, but 19 FTSE 100 companies showed either zero or negative cost of current defined benefit service costs, up from 16 a year ago.

A spokesman for RBS said: "RBS has large pension liabilities as we have a long history of defined benefit pension provision over a period where we were a very large employer.

"At 31 December 2013, our liabilities across all schemes were £30bn and, more importantly, the net pension deficit on this basis was £3bn. Actions to manage our pension funding position have been ongoing for a number of years, and considerable progress has already been made."

The spokesman added: "RBS will continue to work constructively with the trustees of all of our plans to adequately fund our pension obligations and protect the security of members' benefits."

Looking ahead, JLT highlighted the Pension Regulator's new statutory objective of sustainable growth, and noted the key role of shareholders in the future of company pension schemes.

"If shareholders see none of the upside of pension scheme investment in equities and all of the downside, there will inevitably be further pressure on company management to encourage moves towards lower-volatility investments in pension schemes."

Contextual targeting label: 
Finance

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