Defined BenefitMay 1 2018

Private pension deficits fall by £53bn

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Private pension deficits fall by £53bn

UK private defined benefit (DB) schemes have seen deficits fall by £53bn in the last month, standing at £78bn at the end of April, according to data from JLT Employee Benefits.

At the end of March, the total shortfall of these schemes stood at £131bn, while at the end of April last year it reached £146bn.

The total assets of these pension funds are now worth £1.5tn, while the liabilities stood at £1.6tn.

The total deficit of FTSE 100 companies defined benefit schemes has also fallen, by £18bn to £15bn, when compared with the previous month.

The shortfall of FTSE 350 companies schemes also decreased, by £21bn, standing now at £22bn.

According to Charles Cowling, director at JLT Employee Benefits, markets continue to be positive for pension schemes, and "overall reported pension deficits are showing a strong improvement from 12 months ago".

He said: "Indeed, the FTSE 100 is close to showing an aggregate surplus in its pension schemes for the first time in almost a decade.

"This is despite the recent poor GDP figures suggesting the UK economy is on the brink of stagflation."

Mr Cowling argued that for pension schemes the outlook for interest rates is crucial.

He said: "It had been thought quite likely that the Bank of England's monetary policy committee would raise interest rates at their next meeting on 10 May, but the latest weak GDP growth figures may once again have put back the date of the next interest rate rise.

"Additionally, the Bank of England is currently debating introducing greater clarity in its future interest rate plans, which would be of significant interest to pension schemes as they seek to plan and navigate their de-risking paths."

Mr Cowling also referred to the annual funding statement published in April by The Pensions Regulator (TPR), which "contains a number of stark warnings that the regulator will be taking a tougher stance on lengthy recovery plans and situations where dividends to shareholders are greater than deficit recovery contributions to pension schemes".

He added: "The regulator also gave a clear warning that it is prepared to flex its muscles and use its intervention powers if it is unhappy at how pension deficits are being managed.

"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."

Mr Cowling argued that in light of the watchdog's recommendations, and of the government's white paper on DB schemes, "now may be a good time for companies and trustees to take advantage of recent positive market conditions and reduce risk in their pension schemes."

maria.espadinha@ft.com