The total deficit in FTSE 100 pension schemes has decreased by £16bn to £60bn in the year to 31 March 2014, JLT Employee Benefits has said.
According to JLT's data, the deficit fell by 21% despite the total deficit funding decreasing to £7.7bn in the year to 31 March 2014 from £10.5bn in the previous year.
JLT said that HSBC made the largest deficit contribution of £0.5bn while 61 other FTSE 100 companies also reported significant deficit funding contributions in their most recent annual reports and accounts.
However, JLT said that there are a "significant number" of FTSE 100 companies whose pension schemes represent "material risk" to the business, with Sainsbury's pension liabilities having outgrown its equity market value in Q1 2014 by 13%.
Furthermore, in the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have risen from £515bn to £557bn, and a total of 15 companies have disclosed pension liabilities of more than £10bn, the largest of which is Royal Dutch with £54bn.
Charles Cowling, JLT Employee Benefits director, said: "Pension liabilities can have a considerable impact on corporate decision-making and their importance in the boardroom depends on the relative size of the pension scheme."
For example, Cowling said that the fact that BT may be forced to increase its pension contribution could potentially impair its ability to compete with BSkyB over sports broadcasting rights.
He added that the case of BT also provides evidence that balance sheet volatility, caused by pension schemes, flows through to share price volatility with the company's share prices falling 2.4% on news of the potential increase in pension deficits.
JLT's research also suggests that the decline in ongoing defined benefit (DB) pensions continues.
After allowing for the impact of changes in assumptions and market conditions, the underlying reduction in ongoing DB pension provision is a further 6% in the last 12 months alone.
Only 60 FTSE 100 companies are still providing more than a handful of current employees with DB benefits, and of these only 23 companies are still providing DB benefits to a significant number of employees.
Cowling said: "Attempts by companies to stem the growth of their pension liabilities by closing DB schemes continue but they have had minimal impact on deficits due to difficult economic conditions.
"The decline in DB pension provision continues and is concentrated in fewer and fewer companies. The top 10 pension schemes by liability make up one quarter of total private sector UK pension scheme liabilities.
"This poses challenges for the Pensions Regulator, which in its latest statement on pension scheme funding suggests it is going to pay even closer attention to those pension schemes that represent the biggest risks."
First published 16.07.2014
monique_simpson@wilmington.co.uk
