Defined Benefit  

FTSE 100 pension funds reach surplus

FTSE 100 pension funds reach surplus

The top companies in the UK have seen their pension funds reach a surplus for the first time in 10 years on an aggregated level, according to data from JLT Employee Benefits.

FTSE 100 defined benefit (DB) schemes had a surplus of £3bn in July, up from a £4bn deficit in the previous month, under the standard accounting measure used in company reports and accounts.

Meanwhile FTSE 350 company pension funds were in balance at the end of the month, improving from a £9bn shortfall in June.

Charles Cowling, chief actuary at JLT Employee Benefits, said: "After 10 years of deficits, finance directors may be celebrating today as FTSE 100 pension schemes finally move into surplus.

"Of course, this is the overall picture and individual companies and their pension schemes may show different positions.

"Equally, in many cases, these accounting numbers are not the same figures that pension scheme trustees will be looking at when making demands on employers for pension scheme funding.

"Trustees tend to be a lot more cautious when looking at their pension scheme valuations and may therefore still be making requests on employers for additional funding of pension deficits."

Nevertheless, Mr Cowling still argued these figures were good news for all UK pension schemes.

He said: "Despite an unsettled political backdrop, with Brexit looming, markets have continued to be favourable for pension schemes.

"Moreover, the improvements in life expectancy, which have added so much to pension scheme liabilities over the last 10 or 20 years, do indeed seem to be slowing."

Overall, UK private DB schemes were still in deficit, at £22bn, up from £43bn in the previous month.

At 31 July 2018

Assets

Liabilities

Surplus / (Deficit)

Funding Level

FTSE 100 Companies

£676bn

£673bn

£3bn

100%

FTSE 350 Companies

£765bn

£765bn

£0bn

100%

All UK Private Sector Pension Schemes

£1,584bn

£1,606bn

(£22bn)

99%

Mr Cowling said: "Much may depend on Thursday’s (2 August) meeting of the monetary policy committee at the Bank of England, with City experts and pundits alike widely predicting an interest rate rise.

"If Bank base rates increase to 0.75 per cent as expected, it will only be the second time since the 2008 financial crisis that the Bank has increased rates.

"Pension schemes have been hoping to see interest rate rises for most of the last 10 years.

"The record low interest rates through this period have been a key driver in producing huge pension scheme deficits, which are only just now reaching recovery as a result of the long bull market in equities."

PwC also published its monthly DB deficit figures today (1 August), which showed the shortfall of these schemes stood at £180bn at the end of July, £20bn less than the previous month.

The difference in figures between PwC’s Skyval Index and JLT is due to the method utilised to measure the deficit – PwC’s data is based on the 'gilts plus' method which is widely used by scheme actuaries.

Steven Dicker, PwC’s chief actuary, said: "The continued fine weather seems to have cast a positive spell on UK pension funds, which have benefitted from steadily increasing asset values in recent months.

"However, with continued political uncertainty, it remains to be seen how long the good streak will last."