FTSE 100 DB plans record pension funding surplus for first time in 10 years

Defined benefit plans of FTSE 100 companies saw a swing to a total surplus of £3 billion ($3.9 billion) in July, the first time in a decade they have been in this position, according to JLT Employee Benefits.

An update by the consultant said the surplus followed a £1 billion deficit as of June 30, and compared to a £34 billion deficit as of July 31, 2017.

The funded status of these pension funds was steady at 100% over the month, but improved from 95% a year earlier.

All corporate funds saw their deficits fall 35.3% in July and 83.1% for the year to £22 billion. Funding levels improved to 99% as of July 31, up from 98% as of June 30 and 92% a year earlier.

Total assets for all funds grew 0.7% in July and 3.5% for the year to £1.584 trillion, while liabilities fell 0.06% in July and 3.3% for the year to £1.606 trillion.

FTSE 350 funds also recorded improvements over the month and the year, with no deficit as of July 31. That compared to a £5 billion deficit a month earlier and a £43 billion deficit as of July 31, 2017. Funding levels improved to 100%, up from 99% at the end of June and 95% a year earlier.

"After 10 years of deficits, finance directors may be celebrating today as FTSE 100 pension schemes finally move into surplus," said Charles Cowling, chief actuary at JLT Employee Benefits, in a statement accompanying the update. "Of course, this is the overall picture and individual companies and their pension schemes may show different positions. Equally, in many cases, these accounting numbers are not the same figures that pension scheme trustees will be looking at when making demands on employers for pension scheme funding. Trustees tend to be a lot more cautious when looking at their pension scheme valuations and may therefore still be making requests on employers for additional funding of pension deficits," he said.

Mr. Cowling also highlighted the potential impact of an increase in U.K. interest rates by the Bank of England, set to be announced Thursday. He said experts and pundits expect a move in rates to 0.75% from 0.5%. "Pension schemes have been hoping to see interest rate rises for most of the last 10 years. The record low interest rates through this period have been a key driver in producing huge pension scheme deficits, which are only just now reaching recovery as a result of the long bull market in equities."