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Pension Funds

JLT says U.K. corporate deficit jumps for quarter but improves in year

The total deficit of all U.K. corporate pension funds worsened by 122.9% in December, but funding deficits improved by 10% for the year ended Dec. 31, to 107 billion ($135.9 billion), according to an update by JLT Employee Benefits.

The funded level of these pension funds was 93% for the month ended Dec.31 — falling from 97% in November and was unchanged compared with figures as of Dec. 31, 2017.

Pension fund assets increased 0.85% for the month but fell 3.35% for the year to 1.527 trillion. Liabilities grew 4.6% in December but fell 3.8% for the year, to 1.634 trillion.

FTSE 100 firms saw deficits increase 20 times in December but drop 39% for the year, to 20 billion. The funded level was 97% as of Dec. 31, declining from 100% a month earlier and improving from 95% a year earlier.

For FTSE 350 companies, deficits were at 29 billion, increasing 483% for the month, but improving 32.5% for the year. The funded level declined to 96% over the month from 99% in November and improved from 95% as of Dec. 31, 2017.

"2018 was a turbulent year for pension schemes but it was not all negative. Markets were initially strong in the face of considerable political uncertainty and signs emerged that interest rates are at last on the way up. That said, there is no sign yet of an unwinding of the Bank of England's position on quantitative easing," Charles Cowling, chief actuary at JLT Employee Benefits, said in a news release accompanying the update.

"As the bank's monetary policy committee highlighted, Brexit uncertainties have intensified considerably in recent weeks and these are weighing on U.K. financial markets, with significant falls in U.K. equities and pressure too on sterling. All of this gave rise to increases in the outlook for inflation and a lowering of expectations for economic growth, yet still resulted in a unanimous vote from the MPC to keep interest rates unchanged and markets are not pricing in a rise in interest rates until the end of 2019. But that could all change," he said.

"It is a very mixed picture for companies and their pension schemes. Some have successfully navigated the turbulent markets, have paid in significant additional contributions and are now looking to lock down on emerging pension surpluses by securing pension liabilities in the insurance market," Mr. Cowling added.

Mr. Cowling said some businesses including retailers are facing difficult business conditions and "debilitating pension deficits."

"For the third consecutive year, footfall has dropped with early indications suggesting a drop of 3% on last year," he said.