Defined Benefit 

FTSE 100 pension schemes return to surplus

FTSE 100 pension schemes return to surplus

Pension schemes of the UK's biggest companies, those in the FTSE 100 index, have returned to a surplus for the first time since the financial crisis of 2007-08.

Consultant firm LCP analysed FTSE 100 company reports for 2017, and found that their schemes turned a £31bn deficit into a £4bn surplus by the end of the year.

Since that time, the surplus has continued to grow, reaching over £20bn by the end of April 2018, the firm added.

According to the analysis, the overall accounting position improved from 95 per cent to 101 per cent in 2017.

This rise in funding levels has been driven by company contributions of £13bn – even those these were 25 per cent lower than the record £17.3bn in 2016.

Strong investment growth over the year, as well as changes in the approach to longevity and discount rate assumptions which largely offset the impact of worsening financial conditions, also contributed for the improvements.

The recent collapses of BHS and Carillion have increased the focus on whether companies are paying a fair share into their pension schemes compared to shareholder dividends.

LCP’s report concluded that FTSE 100 companies continued to pay more in shareholder dividends than pension contributions, paying some £80bn in dividends - six times more than the amount paid to pension schemes.

According to Phil Cuddeford, LCP partner and lead author of the report, although the fact that pension schemes are back in surplus is a good news, “it is essential that corporate sponsors don’t think they’re out of the woods just yet”.

He said: “History has proven that such accounting surpluses can quickly be wiped out by deteriorating market and economic conditions.

“On trustees’ typical pension scheme funding basis, significant deficits remain, and the persistent gap between dividend payments and scheme contributions is likely to be scrutinised more intensely in the wake of the high-profile collapses of Carillion and BHS.”

BHS went into administration in April 2016, putting workers' retirement nest eggs at risk and The Pensions Regulator has been investigating the case since.

In the end, a £363m settlement with Sir Philip was reached to fund a new independent pension scheme for 19,000 former BHS workers.

Carillion had 13 final defined benefit (DB) in the UK with more than 28,500 members, and an aggregate deficit for PPF purposes of around £800m.

It is expected that 11 of these plans will ultimately end up in the pensions lifeboat, with the vaste majority of these already in assessment at the Pension Protection Fund (PPF).

After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.

maria.espadinha@ft.com