FTSE 100 companies provided additional security to their pension funds via promises of non-cash contributions during 2013 at the expense of cash contributions, with 38 firms reporting this kind of measure to bolster their arrangements.
The growth in these tools, said Lane Clark & Peacock in its annual report looking at FTSE 100 firms in the U.K. and their pension funds, explains in part an overall reduction in cash contributions to the pension funds. LCP said firms paid contributions of £14.8 billion ($25 billion) to their DB plans in 2013, a decrease of 12% compared with 2012. LCP estimated that £7.6 billion of those contributions went toward plugging deficits, rather than toward additional accruals for participants.
Rather, corporate plans are shoring up pension funding with asset-backed contribution arrangements.
“There are 10 companies in 2013 who have disclosed alternative funding arrangements this year but didn’t disclose such arrangements last year,” said Bob Scott, partner at LCP, in an e-mailed comment. “Either way if you think that, of the 89 FTSE 100 companies with a DB scheme probably only 1 in 3 (say 30) will have done a funding valuation in the last 12 months and so the proportion that have used alternative funding methods is appreciable.”
LCP also found that there is currently no FTSE 100 company offering a traditional defined benefit plan to new employees, and only four companies offer any form of DB plan to new employees. Over the past year, four corporations, including supermarket J Sainsbury PLC, froze their plans.
HSBC Holdings PLC, Severn Trent Water and The Weir Group PLC all reached agreement to freeze their pension funds next year.
The report estimated that the total deficit of FTSE 100 company pension funds was £37 billion as of June 30, down 14% compared with June 30, 2013.