Defined Benefit  

FTSE 100 pensions back in the red

FTSE 100 pensions back in the red

The top companies in the UK have seen their pension funds slip back into deficit, after reaching a surplus in July for the first time in 10 years, according to data from JLT Employee Benefits.

FTSE 100 defined benefit (DB) schemes had a deficit of £3bn in August, which compares to a £3bn surplus in the previous month, under the standard accounting measure used in company reports and accounts.

Meanwhile, FTSE 350 company pension funds registered a shortfall of £7bn, coming from a balanced position.

Regarding all DB private schemes in the UK, the deficit deteriorated from £22bn in July to £40bn in August.

According to Charles Cowling, chief actuary at JLT Employee Benefits, the new figures meant "markets seem to be holding their breath" wary of the "fragile" economic environment.

He said the decision from the Bank of England to raise interest rates to 0.75 per cent in August, the highest level since the financial crisis, had been a long anticipated move but there was still anticipation of low rates for the foreseeable future.

He said: "Outgoing member of the Bank of England’s monetary policy committee (MPC), Ian McCafferty, has warned that we should be expecting low interest rates for the next 20 years – and this is coming from possibly the most hawkish member of the MPC, who has long encouraged a rise in interest rates.

"As a result, a subdued market has seen long term interest rates drift slightly downwards this month with inflation rates remaining broadly unchanged."

Mr Cowling also noted many pension scheme trustees were currently looking at their triennial valuation results and were reviewing funding and investment strategies. 

He said: "Trustees do tend to be more cautious when looking at their pension scheme valuations.

"However, many pension schemes are seeing valuation results which are an improvement on their funding position at the last valuation three years ago.

"There is the possibility that 2018 may see a welcome and much reduced demand for additional pension funding on employers."

maria.espadinha@ft.com