FTSE 350 defined benefit (DB) pension obligations have "dramatically improved" and are close to reaching pre-recession levels, PricewaterhouseCooper (PwC) has said.
The consultancy firm's pensions support index (PSI), which tracks the overall level of support provided to DB schemes of the FTSE 350 companies, revealed that the economic recovery is feeding through to make pension schemes more manageable.
An improvement in company performance and a sharp rise in gilt yields in the second half of 2013 have caused a fall in pension deficits, PwC said.
However, the firm said that when looked at individually, the pension deficits for a number of companies are still large when compared to the financial strength of the sponsor company.
Jonathon Land, PwC pensions credit advisory leader, said: "It's encouraging that the economic recovery is finally translating into improved company performance and more manageable pension deficits for FTSE350 companies. Given that the forecast for GDP remains strong, we anticipate this improvement to continue.
"The increase in score is an opportunity for companies and trustees to refresh their scheme's investment strategy in light of their strengthened employer covenant. The Pension Regulator's new code of practice, which puts the employer covenant at the heart of the pension scheme funding process, makes this shift in thinking even more important."
PwC said that the index improved by seven points over the second half of 2013 to a score of 83 out of 100.
This is the largest positive six month improvement in the index since December 2009 and is only five points away from the pre-recession index high in June 2007 of 88, the firm said.
On an individual basis, the data also revealed that 10% of FTSE 350 companies with DB schemes still have an individual score of less than 50.
Julia Dickson, PwC partner in pensions credit advisory, said: "Weaker PSI scoring companies with poor company performance are likely to be the most impacted by changes to the PPF levy. These companies need to start taking action now in considering how to deal with this change."
First published 10.06.2014
monique_simpson@wilmington.co.uk
