The deficit of all UK private sector schemes has fallen by £75bn in the 12 months to 28 February 2018, JLT Employee Benefits has reported.

According to JLT's monthly index, the pension deficit of all private sector pension schemes in the UK fell by £75bn from £180bn as at 28 February 2017 to £105bn as at 28 February 2018. Total assets fell slightly from £1,571bn to £1,524bn and liabilities also dropped from £1,751bn at the end of February 2017 to £1,629bn at the end of last month.

The funding level for these schemes was at 94 per cent at 28 February 2018, JLT recorded.

Under the standard accounting measure, IAS19, the deficit of FTSE 100 companies also reduced year-on-year from £52bn in February 2017 to £24bn in February 2018. The deficit of FTSE 350 firms also fell in the year from £63bn to £32bn at the end of last month.

The schemes of both FTSE 100 and FTSE 350 firms had a funding level of 97 per cent and 96 per cent, respectively.

Commenting on the monthly findings, JLT Employee Benefits director Charles Cowling said: “Once again, markets have been reasonably benign for pension schemes this month and overall reported pension deficits have continued to drift downwards. However, this positive picture masks ongoing challenges for a number of companies with large pension schemes, evidenced this week by news that the Toys R Us pension scheme will soon be following Carillion’s scheme into the Pension Protection Fund (PPF)."

Cowling noted that the current actuarial valuations taking place are likely to present a need for "significant increases" in cash funding for schemes. "This will come as a difficult message" to schemes and sponsors alike, he said, as "tension between funding deficits and paying dividends to shareholders has already spilled over".

From this Cowling noted that he expects that The Pensions Regulator will look to address and take a firmer position over companies that are prioritising shareholder dividends over pension scheme funding in its 2018 Annual Funding Statement. The regulators extended powers are anticipated in the upcoming DB white paper in light of schemes including Toys R Us and Carillion falling into the pension lifeboat.

“The positive news we can take from the recent examples of Carillion and Toys R Us is that the UK system of protections established in 2005, and most significantly the introduction of the PPF, have collectively meant that members’ pensions are now much better protected than they were. Hard as it is to see a company and a pension scheme fail, the presence of the PPF means that trustees can sleep easier knowing that the very large majority of members’ pension benefits will be paid to members – even if a company fails,” Cowling concluded.

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