Defined Benefit 

UK private pension deficits fall £11bn

UK private pension deficits fall £11bn

The shortfall of all UK private defined benefit (DB) schemes has decreased by £11bn in one month, to £150bn at the end of December, according to data from JLT Employee Benefits.

At the end of November, the total deficit stood at £161bn, while at the end of December last year it reached £187bn.

However, the total deficit of FTSE 100 companies defined benefit schemes is now £41bn, £1bn more than in the previous month.

Regarding FTSE 350 companies, the deficit has also increased £1bn, standing now at £52bn.

According to Charles Cowling, director at JLT Employee Benefits, "2017 was a turbulent year for pension schemes but one with many positives".

He said: "Markets were strong in the face of considerable political uncertainty and we have, finally, signs that interest rates are on the way up. Additionally, the latest mortality analysis points to a slowing down in the rate of increasing longevity.

"All of this is good news for pension scheme deficits which have shown some significant improvement over the past year."

As the deficits fall, the pension buy-out market is showing signs of taking off, Mr Cowling argued.

He said: "With over £12bn of deals transacted in 2017, all the signs point to an even stronger year in 2018, where it is possible that up to £30bn of deals could be transacted."

At the same time, some of the UK's largest pension schemes are closing to all future benefits – following the path that smaller pension schemes have been treading right across the private sector for over 10 years now, Mr Cowling added.

This is the case with Royal Mail, which is now looking to create a hybrid pension scheme, and of Universities Superannuation Scheme (USS), the biggest private DB plan in the country, which is currently in talks with workers to close its scheme.

Mr Cowling said: "Combined with the increasing number of DB pension schemes looking to exit entirely through buy-outs, this now means that DB schemes are clearly disappearing from the private sector in the UK.

"When the regulations came into existence some 12 years ago, that saw the creation of the Pension Protection Fund (PPF) there were 7,800 private sector pension schemes covered by the PPF.

"We have lost nearly one third of these pension schemes and we predict that by 2020 there will be less than 5,000 private sector pension schemes left in the UK."

According to a JLT report also published today (2 January), only 19 companies in FTSE 100 still provide defined benefits to a significant number of employees.

Mr Cowling added: "It will still be many years yet before UK plc can afford to settle all of its DB pension liabilities, but we are now clearly on the path to full and final settlement."