Defined Benefit  

FTSE 100 face £12bn extra pension liabilities

FTSE 100 face £12bn extra pension liabilities

The UK's biggest companies could see their liabilities from defined benefit pension schemes increase £12bn following a recent High Court ruling, according to JLT Employee Benefits.

FTAdviser reported last week (26 October) that DB scheme members who contracted out are set to receive millions of pounds in back payments, after a landmark ruling of a case brought by the trustees of Lloyds Bank's DB schemes this summer.

Charles Cowling, chief actuary at JLT Employee Benefits, estimated the total figure to amount to £12bn for FTSE 100 companies and a total of £32bn across the whole of UK companies.

According to the consultancy's latest monthly funding update, FTSE 100 companies had a pension deficit of £9bn in October, after reaching a surplus in July for the first time in 10 years.

FTSE 350 companies registered a shortfall of £15bn, while all UK private sector DB schemes had a deficit of £66bn at the end of last month.

Justice Morgan ruled last week that trustees must equalise benefits between women and men who have guaranteed minimum pensions (GMPs) as a result of contracted out benefits.

The case concerned a pension problem spanning almost three decades and could have widespread implications for hundreds of thousands of pensioners.

Mr Cowling said the court verdict might appear to be a very technical case which would mean little to most members of pension schemes but he warned "it could have huge implications".

He said: "It confirms what has been long known, but ignored by many pension schemes, which is that the elements of pensions known as GMPs contravene gender discrimination rules. This is going to mean that pension schemes are going to have to recalculate benefits for millions of members."

Mr Cowling said besides the increase in liabilities, DB schemes could incur additional costs and resources as "the calculations are fiendishly complicated".

"Indeed, for many pension scheme members, the cost of doing the calculations alone could be much greater than the cost of the additional benefits that may be awarded," he noted.

He added auditors may want the cost to come out of a company's profits.

"We argue that as this Lloyds Banking Group case only confirmed what was already a legal requirement, nothing has changed - other than we now know how the courts want us to do the calculations.

"This cost should therefore go through company accounts as an ‘actuarial loss’. But the major audit firms may think differently - they are currently discussing the options and hoping to come to a consensus view on their preferred accounting treatment."

maria.espadinha@ft.com