FTSE 100 pension funding positions 'fully recovered' to pre-Covid levels

FTSE 100 IAS19 pension funding positions have “fully recovered” from the fallout of the Covid-19 pandemic with a combined surplus of over £50bn, a £10bn increase compared to March 2020, according to analysis by LCP.

The group’s newly launched FTSE 100 Pensions Explorer revealed that the surplus for FTSE 100 companies' defined benefit schemes has “soared” over the first half of the year, increasing from £10bn on 31 December 2020 to £52bn as of 30 June 2021.

This was attributed to good asset returns since the turn of the year across most growth asset classes, and an increase in accounting discount rates from the record lows observed at the 2020 year-end.

It also found that there are just 11 FTSE 100 companies that are estimated to have an accounting deficit as of 30 June 2021.

LCP partner, Jonathan Griffith, stated that FTSE 100 companies can "breathe a sigh of relief" now that pension positions have recovered following the volatility and uncertainty of the past year, suggesting that many companies may look to "seize the opportunity", and consider proactively de-risking their pension schemes,

However, he clarified: “Whilst this is clearly good news, companies can’t afford to become complacent and let pensions fall down the agenda.

"Trouble may lie ahead in the shape of big increases to pension contributions as part of the next round of scheme funding valuations. In addition, potential changes to future pensions funding rules that are on the horizon could also potentially cause FTSE100 deficit contributions to double.”

“Companies need to be prepared and we are seeing more and more turn to contingent funding solutions to help tread the balance between providing important protection for schemes and their members, whilst also protecting companies from ‘overfunding’ and freeing up resources to invest.

"This will continue to be a trend throughout the year and beyond.”

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