FTSE 100 deficit drops £15bn over 12 months; Lloyds ruling will add £12bn to liabilities – JLT

The combined deficit of FTSE 100 pension schemes dropped £15bn over the past 12 months, but JLT Employee Benefits has warned that the Lloyds ruling on Guaranteed Minimum Pensions (GMPs) could add £12bn to pension liabilities.

Its latest figures in its monthly index on UK private sector defined benefit schemes reveals FTSE 100 companies have a deficit of £9bn, with assets of £662bn and £671bn in liabilities at 31 October 2018. This gives the schemes a funding level of 99 per cent. For comparison, the deficit for FTSE 100 companies at 31 October 2017 was £24bn.

Despite the improved funding levels, JLT Employee Benefits, Charles Cowling, has warned that the ruling in the Lloyds Banking Group case on GMP equalisation will add an extra £12bn to FTSE 100 pension liabilities.

“This may be a very technical case which will mean little to most members of pension schemes or, indeed, to anyone other than pension experts, but it could have huge implications. It confirms what has been long known, but ignored by many pension schemes, which is that the elements of pensions known as GMPs contravene gender discrimination rules. This is going to mean that pension schemes are going to have to recalculate benefits for millions of members.”

He said the calculations are “fiendishly complicated” could incur huge additional costs and resources. He warned that for many pension scheme members, the cost of doing the calculations alone could be much greater than the cost of the additional benefits that may be awarded.

“We estimate that as a result of this case, the pension liabilities on the balance sheets of the FTSE100 are likely to increase by approximately £12bn. More significant for finance directors is that there is a risk that auditors will require these costs to be a hit to reported profits. Across the whole of the UK we estimate this could hit the profits of UK companies by £32billion.

“We argue that as this Lloyds Banking Group case only confirmed what was already a legal requirement, nothing has changed - other than we now know how the courts want us to do the calculations. This cost should, therefore, go through company accounts as an ‘actuarial loss’. But the major audit firms may think differently - they are currently discussing the options and hoping to come to a consensus view on their preferred accounting treatment.”

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