FTSE 100 pension schemes fall back into deficit

The latest monthly defined benefit (DB) funding indexes have shown that FTSE 100 pension schemes have fallen back into deficit, after breaking into surplus for the first time in 10 years last month.

According to JLT Employee Benefit’s monthly index, FTSE 100 schemes have a funding level of 100 per cent, with a deficit of £3bn, as of 31 August 2018. Assets stood at £675bn and liabilities were at £678bn.

The situation has worsened from July 2018, which posted a surplus of £3bn, assets of £676bn and liabilities at £673bn.

However, the DB pension scheme funding position of FTSE 100 companies has improved from August 2017 when schemes had a funding level of 95 per cent and a deficit of £39bn.

JLT Employee Benefits chief actuary, Charles Cowling commented: “Markets seem to be holding their breath as FTSE 100 pension schemes just slipped back into deficit, having broken into surplus last month for the first time in 10 years.

“The Bank of England did increase interest rates last month in a long anticipated and much signposted move. However, outgoing member of the Bank of England’s Monetary Policy Committee, Ian McCafferty, has warned that we should be expecting low interest rates for the next 20 years. As a result, a subdued market has seen long term interest rates drift slightly downwards this month with inflation rates remaining broadly unchanged.”

Furthermore, the DB schemes for FTSE 350 companies also fell back into deficit after breaking even in July 2018, to £7bn as of 31 August 2018, while the funding level declined by one per cent to 99 per cent during the same time period. Additionally, assets fell from £765bn to £764bn and liabilities increased from £765bn to £771bn

However, the FTSE 350 funding indexes also showed improvement in comparison to August 2017, when deficit, assets, liabilities and funding level stood at £49bn, £775bn, £824bn and 94 per cent respectively.

Cowling continued: “UK equity markets have held up well, despite an unsettled political backdrop, but Brexit worries and trade fears are not far away. The current environment seems fairly fragile, and it does seem like it would not take much to spook markets and send asset prices tumbling.

“Trustees do tend to be more cautious when looking at their pension scheme valuations. However, many pension schemes are seeing valuation results which are an improvement on their funding position at the last valuation 3 years ago. There is the possibility that 2018 may see a welcome and much reduced demand for additional pension funding on employers.”

According to JLT’s latest figures, all UK private sector pension schemes deficit totalled £40bn as of 31 August 2018, down by £101bn from this time last year, and the funding level has increased by 6 per cent to 98 per cent. Assets increased from £1,568bn to £1,579bn and liabilities declined from £1,709bn to £1,619bn.

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