FTSE 100 pension funds’ total deficit decreased 21% in the year ended March 31, to £60 billion ($103 billion), despite contributions decreasing 27% in the same period to £7.7 billion.
FTSE 100 companies’ most recent annual reports and accounts, analyzed by JLT Employee Benefits, show the total disclosed pension liabilities of these companies have risen 8% to £557 billion, with 15 reporting pension liabilities of more than £10 billion. A total of 18 companies disclosed liabilities of less than £100 million, of which 12 had no defined benefit plan liabilities at all.
According to JLT’s analysis, pension funds represent a material risk to the business of six of the companies, with liabilities outgrowing equity market values.
Sixty-two FTSE 100 companies reported significant contributions to their pension funds, with HSBC Group, London making the largest contribution of £500 million net of ongoing costs.
“The big drivers of deficits are interest rates and the stock markets, but interest rates more so,” said Charles Cowling, director, JLT Employee Benefits, in a telephone interview. “When you have got, as we have in the FTSE 100, over £500 billion of liabilities, and a bit less than that in assets, it doesn’t take very much to create a massive swing.”
Mr. Cowling said the reduction in cash funding is relatively small in the context of the impact of interest rates.
“But we are still a long way from being out of the woods” when it comes to deficits, Mr. Cowling said. “We look like we could have low interest rates for quite some time yet, and companies will be under pressure to carry on filling those holes in the pension fund with cash. We have two ways to fill deficits — through investment returns and cash. When investment returns are looking low, the other route is cash. That is the problem pension funds have got — we have had a good run in the markets, but how much more is there? More cash may well be needed soon.”