Current actuarial valuations are likely to show a need for increased cash funding for pension schemes, while deficits have slowly decreased, JLT has reported.

According to JLT Employee Benefits’ monthly index, the deficit of all UK private sector pension schemes was £124bn as at 31 January, down £60bn from £184bn at the end of January 2017. Total assets were slightly up on the previous year at £1,555bn from £1,529bn and liabilities fell from £1,713bn at the end of January 2017 to £1,679bn at 31 January 2018.

FTSE 100 firms are expected to have recorded a total deficit of £35bn at the end of last month and FTSE 350 companies has a deficit of £44bn. This is significantly lower than the £53bn and £64bn, respectively, as at 31 January 2017. Both assets and liabilities for FTSE 100 and FTSE 350 firms increased year-on-year.

JLT Employee Benefits director Charles Cowling said: “Markets have seemingly been reasonably benign for pension schemes this month, as overall reported pension deficits continue to drift downwards. However, this masks frantic activity within a few companies with large pension schemes. For many companies the pension deficit calculated by the pension scheme trustees and used for calculating the cash funding required to be paid by the employer, is significantly greater than the pension deficit reported in the employer’s accounts.”

Cowling added: “Actuarial valuations being carried out currently are likely to show a need for significant increases in cash funding. This comes at a time when the tension between funding pension deficits and paying dividends to shareholders has spilled over in recent weeks, with the positions at Carillion and Capita grabbing headlines and column inches.

“The harsh lesson for shareholders may be that there are many companies with large pension schemes which are now going to come under increased pressure to prioritise the financing of pension deficits over returns to shareholders. This can only mean that we are likely to see more companies following the Capita example with share prices suffering as a result.”

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