Approximately one third of FTSE 100 pension schemes will undergo tough negotiations with their sponsors over the next six months, as they look to secure higher cash contributions, JLT Employee Benefits has revealed.

Following their actuarial valuations, JLT has said that company directors will struggle to balance the opposing interests of the two stakeholder groups.

While pension deficits and liabilities have been worsening over the last decade, this year is also likely to be affected by additional economic uncertainty as a result of Brexit and the UK general election, and market volatility, which will impact pension funding positions negatively.

Firms currently carrying out their actuarial valuations with large pension liabilities include BAE Systems, BT, GlaxoSmithKline, Lloyds Banking Group, Standard Life and Tesco. JLT noted that some of these companies have pension liabilities worth more than the company’s equity value, which could make trustees and shareholders “equally nervous”.

JLT’s research has revealed that 44 FTSE 100 companies could settle their pension deficits fully with a payment of up to one year’s dividend, nine companies would need up to two years’ dividends and seven companies would need more than two years’ dividends to settle their pension deficits in full.

Nonetheless, many companies are reluctant to make this payment as it would interfere with declaring dividends for their shareholders.

Overall, the total disclosed pension deficit of the FTSE 100 companies was £26bn and total dividend paid by companies with a DB pension scheme was £68.5bn at 31 September 2016, the latest data available. This is in comparison to a deficit of £48bn and dividends of £67bn one year ago. Contributions to FTSE 100 company pension schemes was £13.5bn from £13.4bn the previous year.

JLT Employee Benefits, director, Charles Cowling commented: “Actuarial valuations carried out this year are likely to show not only much bigger deficits than three years ago but also a massive increase in contributions needed to fund ongoing DB benefits – for those few pension schemes that are still providing DB benefits to employees. This is going to lead to some very tough negotiations on pension scheme contributions. With seven FTSE100 companies already paying more in pension contributions than in dividends to shareholders, this has the potential to hit shareholder returns. Pension scheme members may also suffer as the last few open Private Sector DB pension schemes are closed in the face of impossibly high contribution costs.”

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