Firms in the FTSE 100 share index paid an extra £11bn into their pension schemes last year in a bid to reduce the schemes' deficits, a report by actuaries LCP claims.
FTSE 100 companies paid a total of £21.4bn into their pension schemes in 2011, with almost £11bn of those contributions going towards removing deficits in their defined benefit (DB) schemes rather than boosting benefit accrual for current employees.
Despite the increase in funds coming from the sponsoring companies, LCP says the group still had a deficit totalling £41bn at the end of May 2012. This is twice as much as at the same time the year before.
However, schemes seem to understand the difficult times they find themselves in and this is reflected in the fact that many chose a less risky strategy. For example, only 35% of pension scheme assets were being held in equities at the end of 2011, compared to 43% in 2011 and nearly 70% ten years ago in 2002, the report said.
LCP also says no FTSE 100 company offers a final-salary scheme to new employees. The last one to do so was the scheme of oil giant Royal Dutch Shell, which closed to new members in January.
Auto-enrolment
The actuary warns that as companies become subject to auto-enrolment requirements later this year, overall pension costs will continue to rise and, "unless they cut back on current contributions and benefits", pension contributions for the FTSE 100 are projected to exceed £26bn by 2013.
Bob Scott, partner at LCP said that the increased deficit this year reflects the fact that corporate bond yields sit at record lows and equity markets have been drifting for a number of years.
He says: "The challenge this poses to the UK's leading companies is compounded by the significant volatility in deficits on a day-to-day basis. Deficits have fluctuated by as much as £10bn in a single day as uncertainty continues to characterise both equity and debt markets. Against this background, we have seen companies pay very substantial pension contributions: four companies paid over £1bn into their DB schemes and, earlier this year, BT made a further £2bn payment to accelerate the removal of its deficit - the largest ever one-off deficit contribution to a UK scheme."
Key findings of the report:
- FTSE 100 pensions deficit more than doubles to £41bn despite £20bn in pension contribution in 2011
- Deficit fluctuates by up to £10bn a day
- Pension schemes reduce equity holdings to their lowest level since 1994 (when LCP research first commenced)
- No FTSE 100 firm offers a final-salary scheme to new employees
- Auto-enrolment will extend pension provision to many more employees but likely to lead to general "leveling down" of future provisions
First published 10.07.2012
azeevalkink@wilmington.co.uk
