The aggregate defined benefit pension deficit of UK FTSE 100 firms fell by 32 per cent in the year to 30 June 2017, while progress has not been universal across all schemes, it has been reported.

According to JLT Employee Benefits’ latest quarterly report, FTSE 100 companies saw a 32 per cent drop in the aggregate DB deficit to £46bn.

In the past year, market conditions have aided the deficit of these schemes with strong equity market returns leading to a “much-needed boost to investment performance,” JLT Employee Benefits director Charles Cowling commented.

Blue chip sponsors paid considerable contributions to counter their scheme deficits, with more than half reporting large deficit funding contributions in their most recent annual report and accounts. Total contributions in the year to June 2017 rose by 65 per cent to £10.8bn, up from £6.4bn in 2016. Nonetheless, the contribution increase was mostly attributable to a small number of schemes, JLT highlighted.

Although some FTSE 100 schemes showed improved funding performance, total disclosed pension liabilities increased by 21 per cent to £710bn from £586bn in 12 months. These have been largely due to low interest rates, increasing life expectancy and regulation that has led to soaring liabilities and ultimately led to the closure of schemes to future accrual. Less than one fifth of FTSE 100 businesses, 19, are still offering DB benefits to a significant number of employees, JLT stated.

JLT noted that the distribution of liabilities across index constituents has remained uneven. Across the market, 17 large legacy companies have reported pension liabilities of over £10bn, while nine companies that are newer to the index are free of DB obligations, reporting no liabilities.

Furthermore, JLT noted that schemes that performed better than the market backdrop were those with “large, mismatched equity positions”. Average scheme asset allocation to bonds grew from 61 per cent in 2016 to 63 per cent as at June 2017.

Cowling explained that although it is positive to see a reduction in sponsors’ total deficit, it is important to note that “that this number masks the materially worse funding position likely to be reported by upcoming actuarial valuations”.

“More broadly, progress has not been universal across FTSE 100 pension schemes and remains the story of the few rather than the many. While a number of scheme sponsors are acutely aware of the risks and have taken steps to address looming liabilities and deficits, too many are burying their heads in the sand and continuing to prioritise the short-term needs of shareholders over their long-term obligations to scheme members and, arguably, the underlying health of their business.

“Increasingly, our analysis highlights the contrast between the new world and an old economy, particularly in sectors already under the pressures of wider structural change – retail, banking, telecoms to name but a few. Looking ahead, legacy businesses who fail to tackle the mounting risks in their schemes may struggle to compete with newer, more agile market entrants, unencumbered by DB pressures,” Cowling concluded.

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