Cash contributions of £150 billion ($194.9 billion) over the past decade have had little impact on the total deficit of FTSE 100 companies, with the combined accounting position of these funds falling to a £17 billion deficit from a £12 billion surplus over that period, finds a new report by LCP.
The consultant's 24th annual Accounting for Pensions report found the continued rise in liabilities — driven by falling bond yields — has harmed companies' positions over the past 10 years. The total value of liabilities has grown 86% over the period ended June 30, to £625 billion.
However, FTSE 100 deficits improved from £46 billion last year, said the LCP report, due to strong returns on assets and a record level of contributions. The report said FTSE 100 companies paid a record £17.3 billion to their DB funds in 2016, up from £13.3 billion in 2015 and £12.5 billion in 2014. In 2013, companies injected £14.8 billion into their funds.
Despite the increase in liabilities, these companies were still able to pay four times as much in dividends in 2016 as they did in contributions.
"The fall in bond yields over the last 10 years has led to a sustained rise in liability values, more than 85% since 2007, meaning companies have effectively paid £150 billion to go backwards," said Bob Scott, senior partner at LCP and author, in a statement accompanying the report. "Companies remain under increasing pressure to pay more into their schemes, and one can only hope that the contributions companies pay in future will have a bigger impact on the pensions deficits than in recent years."
The report also found a continued move toward reducing equities in FTSE 100 portfolios. The average allocation to equities was 26% in 2016, down from 28% a year previous.