FTSE 100 pension schemes offering DB benefits continue to fall - JLT

Written by Theo Andrew
02/01/18

Only 19 FTSE 100 pension schemes are continuing to offer defined benefit pension schemes, as companies race to plug the £705bn liabilities black hole.

According to JLT Employee Benefits, blue chips are closing DB schemes to current and future employees due to rising pensions costs and “onerous pension regulations”.

In addition, total disclosed pension liabilities increased by 21 per cent from £584m to £705m in the last 12 months, as nine of the top 10 companies reduced their DB servicing costs significantly.

JLT Employee Benefits director, Charles Cowling said: “It is sad to see that we are now witnessing the final demise of DB pension schemes in the UK – at least in the private sector. They have simply become too expensive as an employee benefit.

“A typical final salary pension scheme now costs employers more than three times the cost of 30 years’ ago, largely as a result of increased longevity and changing market conditions.”

Cowling added that a DB pension scheme may have cost an employer 10 per cent to 15 per cent in the 1980s, but would now cost an employer over 40 per cent of payroll, even before large deficit payments have been taken into account.

JLT’s research also found that 11 FTSE 100 companies had a disclosed pensions liabilities greater than their equity market value as of 31 March 2017, while International Airlines Group, BT and Sainsbury’s have pension liabilities almost double their equity market value.

“In previous cycles, it has been the smaller schemes that closed the door on future DB benefits for all their members. Now it is the last few massive DB schemes that are closing down”, Cowling added.

Tesco closed its DB scheme in 2016, while the Royal Mail and the Universities Superannuation Scheme also have plans to close all future DB benefits.

Cowling continued: “Employees in much poorer defined contribution schemes will cast a jealous eye on those lucky individuals still enjoying DB benefits, reflecting not only on how many employers have had to channel the large part of their pension spend on propping up expensive DB schemes, leaving little left for their DC schemes, but also reflecting on how an increasingly large part of their taxes is paying for public sector employees to continue to enjoy the expensive luxury of a gold-plated DB scheme.”

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