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Pension Funds

JLT: U.K. corporate pension funds cut deficit by 17.3% in January

The total deficit of all U.K. corporate pension funds fell 17.3% in January and dropped 71.4% over the year ended Jan. 31, to 124 billion ($175 billion).

An update by JLT Employee Benefits said the funding ratio of these pension plans improved to 93% as of Jan. 31, compared with 92% as of Dec. 31, and 89% as of Jan. 31, 2017.

A fall in assets over the month, by 4.2% to 1.555 trillion, was more than offset by a 5.4% drop in liabilities, which totaled 1.679 trillion as of Jan. 31.

Over the year assets grew 1.7%, while liabilities fell 2%.

FTSE 100 company pension funds recorded a 14.6% drop in deficits in January and a 34% fall for the year to total 35 billion. The funding ratio of these plans grew to 95% from 94% a month earlier, and 93% a year earlier.

FTSE 350 companies saw deficits fall 15.4% in January to 44 billion, and fell 31.3% year-over-year. The funding level improved to 95% as of Jan. 31, up from 94% as of Dec. 31, and 92% as of Jan. 31, 2017.

"Markets have seemingly been reasonably benign for pension schemes this month, as overall reported pension deficits continue to drift downwards," said Charles Cowling, director at JLT Employee Benefits, in a statement accompanying the data. "However, this masks frantic activity within a few companies with large pension schemes. For many companies, the pension deficit calculated by the pension scheme trustees and used for calculating the cash funding required to be paid by the employer, is significantly greater than the pension deficit reported in the employer's accounts."

Mr. Cowling also warned that ongoing actuarial valuations are likely to "show a need for significant increases in cash funding. This comes at a time when the tension between funding pension deficits and paying dividends to shareholders has spilled over in recent weeks, with the positions at Carillion and Capita grabbing headlines and column inches."

Mr. Cowling said many companies with large pension funds will come under increased pressure to prioritize plugging deficits over providing returns to shareholders.