UK private defined benefit (DB) schemes have seen deficits fall by £19bn in the last month, standing at £105bn at the end of February, according to data from JLT Employee Benefits.
At the end of January, the total shortfall of these schemes stood at £124bn, while at the end of February last year it reached £180bn.
The total deficit of FTSE 100 companies defined benefit schemes has also fallen, by £11bn to £24bn, when compared with the previous month.
The shortfall of FTSE 350 companies schemes also decreased, by £12bn, standing now at £32bn.
According to Charles Cowling, director at JLT Employee Benefits, "markets have been reasonably benign for pension schemes this month and overall reported pension deficits have continued to drift downwards".
Nevertheless, he warned that this “positive picture masks ongoing challenges for a number of companies with large pension schemes”, giving the example of Toys R Us, which will soon enter the Pension Protection Fund (PPF) after the collapse of the retailer.
Mr Cowling explained that one of the key problems for many companies is that "the pension deficit calculated by scheme trustees, which determines the cash funding required to be paid by the employer, is significantly greater than the pension deficit reported in the employer’s accounts".
He said: "Moreover, actuarial valuations currently being conducted are likely to show a need for significant increases in cash funding.
"This will come as a difficult message for both schemes and sponsors, at a time when the tension between funding deficits and paying dividends to shareholders has already spilled over."
This has been one of the most discussed topics in the Parliamentary inquiry about Carillion, where former bosses of the collapsed contractor were accused of prioritising dividends over pension contributions.
The defined benefit pension schemes of Carillion are all either in the retirement fund of last resort, the PPF , or will soon enter it.
After unsuccessful talks with its lenders and the UK government, Carillion went into compulsory liquidation on 15 January.
Carillion, which employs about 43,000 people, has been struggling for several months, issuing a profit warning last year that sank its share price – which has fallen from more than £2 a year ago to about 14.2p just before it went into administration.
Mr Cowling said: "We expect The Pensions Regulator to take a tougher stance on companies prioritising dividends to shareholders over contributions to pension schemes in its 2018 annual funding statement."
He added that the watchdog is seeking "improved" powers to impose a schedule of contributions on DB pension schemes in the government's upcoming white paper.
The Department of Work & Pensions (DWP) has been working on its white paper on DB schemes, which was first expected to be published in 2017, and then delayed to February 2018, and is now expected in the spring.
The paper, which follows a consultation launched in February into what needed to be done to ensure confidence and secure the future of these schemes, will consider the need to adapt the regulatory regime.
Mr Cowling added: "The positive news we can take from the recent examples of Carillion and Toys R Us is that the UK system of protections established in 2005, and most significantly the introduction of the PPF, have collectively meant that members’ pensions are now much better protected than they were.
"Hard as it is to see a company and a pension scheme fail, the presence of the PPF means that trustees can sleep easier knowing that the very large majority of members' pension benefits will be paid to members – even if a company fails."
maria.espadinha@ft.com
