FTSE 100 DB schemes ‘close to surplus’ for first time in a decade; overall deficit unchanged

FTSE 100 defined benefit pension schemes are “close to showing an aggregate surplus” for the first time a decade, while all DB schemes’ funding continues to improve, JLT Employee Benefits has noted.

According to JLT’s monthly index looking at the funding position of all UK private sector DB schemes, FTSE 100 companies recorded a deficit of £4bn as at 31 May 2018, down from £38bn at the same time in 2017.

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

Both FTSE 100 and FTSE 350 companies’ funding levels improved to 99 per cent at 31 May 2018. All UK private sector pension schemes had a funding level of 97 per cent.

JLT Employee Benefits director Charles Cowling said: “Markets continue to be positive for pension schemes and overall reported pension deficits are showing a strong improvement from twelve months ago. Indeed, the FTSE 100 is very close to showing an aggregate surplus in its pension schemes for the first time in a decade.

“However, crucial for pension schemes, is the outlook for interest rates…Indeed, two factors suggest that the next rise in interest rates could be some months away yet. 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. 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.”

Cowling added that news of TPR CEO Lesley Titcomb’s departure and the government’s white paper Protecting Defined Benefit Pension Schemes, could signal politicans’ intent to increase their consideration of pensions.

He added: “So this latest good news [deficit improvements] 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.”

Moreover, PwC’s Skyval Index showed that the deficit of DB pension schemes remained at £200bn at the end of May. Total assets were at £1,600bn and liability targets were measured as £1,800bn.

PwC noted that while asset performance was positive over the month, this was countered by an increase in the value of liabilities due to movement in market measurement indicators.

PwC chief actuary Steven Dicker commented: “The aggregate deficit continued recent falls for most of the month. However, the last week of May has seen the deficit pushed back up and it ends the month at £200bn.

“The past week shows that the funding level remains volatile and this is likely to be the case throughout 2018 while we await a clearer economic picture.”

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