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Pension Funds

U.K. corporate pension funding deficit drops 7% in December – report

The total deficit of all corporate U.K. defined benefit funds fell 6.8% over the month and dropped 19.8% over the year ended Dec. 31, to £150 billion ($200.6 billion), said JLT Employee Benefits.

The consultant's latest index showed the funding level of these pension funds improved to 92% as of Dec. 31, from 91% as of Nov. 30 and 89% as of Dec. 31, 2016.

Asset growth of 2.5% in December and 5.6% over the year to £1.62 trillion more than offset increases in liabilities. Liabilities grew 1.7% in the month 2.8% over the year to £1.77 trillion as of Dec. 31.

The DB plans of FTSE 100 companies saw deficits rise 25% in December to £41 billion, but fell 25.5% for the year. The funding level was flat over the month at 94% but improved from 92% as of Dec. 31, 2016.

FTSE 350 companies also saw their deficits grow by 2% in December to £52 billion, but fell 23.5% over the year. The funding level was again flat at 94% as of Dec. 31 vs. Nov. 30, but improved from 92% as of Dec. 31, 2016.

"2017 was a turbulent year for pension schemes but one with many positives," said Charles Cowling, director at JLT Employee Benefits, in a statement accompanying the index. "Markets were strong in the face of considerable political uncertainty and we have, finally, signs that interest rates are on the way up. Additionally, the latest mortality analysis points to a slowing down in the rate of increasing longevity. All of this is good news for pension scheme deficits, which have shown some significant improvement over the past year."

Mr. Cowling added that the consultant is seeing signs of the buyout market taking off, with competition heating up between insurers and prices "getting keener. With over £12 billion of deals transacted in 2017, all the signs point to an even stronger year in 2018, where it is possible that up to £30 billion of deals could be transacted."

Separately, JLT Employee Benefits said 19 companies in the FTSE 100 still provide DB benefits to a significant number of employees, defined as incurring DB service costs of more than 5% of total payroll, according to analysis of all annual reports for years ended on or before March 31, and published by Sept. 30.