Defined Benefit  

FTSE 100 pension schemes close to surplus

FTSE 100 pension schemes close to surplus

Pension schemes of FTSE 100 companies are close to surplus, for the first time in a decade, according to data from JLT Employee Benefits.

At the end of May, the total shortfall of these defined benefit (DB) schemes stood at £4bn, down from £15bn in the previous month.

These figures are similar to the ones reported by consultant firm LCP, which analysed FTSE 100 company reports for 2017, and found their schemes turned a £31bn deficit into a £4bn surplus by the end of the year.

In the same period, FTSE 350 firms and all UK private sector schemes registered a deficit reduction from £47bn to £9bn, and £135bn to £43bn, respectively. 

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: "However, crucial for pension schemes, is the outlook for interest rates.

"It had been thought likely that the Bank of England's Monetary Policy Committee would raise interest rates at their meeting on 10 May but that did not materialise."

Mr Cowling argued two factors suggest that the next increase in interest rates could be some months away yet.

He said: "Firstly, there were positive signs on inflation with the latest figures revealing a headline rate of 2.2 per cent, down from 2.3 per cent last month.

"Secondly there has been a change announced to the Bank of England's Monetary Policy Committee this month, with Professor Jonathan Haskel set to replace Ian McCafferty from September.

"Professor Haskel is an academic economist and productivity expert at Imperial College London.

"He is expected to bring insights and understanding on the UK economic outlook at a time when there are increasing signs of the economy stuttering with Brexit looming imminently.

"He replaces Mr McCafferty, who has consistently been one of the more hawkish members of the MPC, voting against the majority in favour of raising interest rates."

Mr Cowling also noted that the other interesting personnel change for pension schemes is the news that Lesley Titcomb is to stand down as head of The Pensions Regulator in February, at the end of her term of office.

He said: "Given the recent government white paper on protecting defined benefit pension schemes promising a tougher stance on pension funding and a vocal and critical Work & Pensions select committee, it is possible that this may signal politicians' intent to ramp up their attention towards pensions.

"So this latest good news in markets may just be the calm before the storm.

"Perhaps this should trigger companies and pension schemes to take advantage of the current relative good times and seek opportunities to de-risk and settle liabilities whilst they can."

PWC also published its Skyval index, based on data from 5,800 defined benefit schemes, which showed that the deficit of these pension funds stood at £200bn at the end of May, unchanged from the previous month.