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Pension Funds

U.K. pension deficits increase 4% in July, more pressure expected in future — report

The total deficit of all U.K. corporate pension funds grew 4% over the month of July, but fell 29.1% over the year ended July 31, to 183 billion ($240.4 billion), said the latest update by JLT Employee Benefits.

The consultant found the funding level remained flat at 90% over the month, but grew from 85% over the year.

Assets grew 0.6% in July to 1.57 trillion. Compared to July 31, 2016, assets grew 5.6%. Liabilities also increased, by 1% in July and 0.5% over the year, to 1.753 trillion.

Defined benefit funds of FTSE 100 companies saw their deficits rise 6.5% over the month to 49 billion. The funding level fell to 93% as of July 31, compared with 94% a month earlier. For the year, the funding level improved from 89%, with total deficits falling 39.5%.

FTSE 350 pension funds also saw deficits rise in July, by 5.2% to 61 billion. The funding level of these DB funds remained flat at 93%. Over the year, deficits fell 35.8% and the funded level improved from 88%.

However, Charles Cowling, director at JLT Employee Benefits, warned in a statement accompanying the data that "these figures hide some pretty major problems. In recent days we have seen both Barclays and the massive USS pension scheme for university staff announce significantly increased funding deficits in their DB schemes. And it is the trustees' funding deficit that drives contribution demands on companies. Those companies and pension schemes currently carrying out their (three-year) actuarial valuation are likely to see significant increases in funding deficits and hence considerable demands for cash contributions."

Mr. Cowling also noted that the International Accounting Standards Board is considering new accounting changes, which "could result in many companies being forced to recognize a substantially greater pension liability on their balance sheets than at present. The IASB is currently carrying out some work to determine the impact of its proposed changes, but potentially it could add tens of billions of pounds of additional liabilities on to the balance sheets of U.K. companies."