Over the past three years, at an aggregate level contributions have remained stable, however this is significantly lower than the £12bn per annum seen during 2009, 2010 and 2011.
As the UK experiences extreme uncertainty after the EU referendum, we question how long until contributions are forced to increase in order to plug the ballooning deficit.
Projected pension payments from DB obligations remain stable with over £1.4tn expected to be paid over the next 60 plus years to former employees. The £630bn of assets currently held to meet these commitments has performed well in absolute and real terms over the last few years. However, falling gilt yields means that future investment returns on these assets are assumed to be considerably lower and consequently companies are going to have make up the gap.
The research, conducted by Barnett Waddingham for the sixth year running, highlights the impact DB pension schemes are having on FTSE350 businesses.
Key findings from the research include:
• In the last three years we have seen fewer companies making very large one off contributions into their DB Schemes. In 2015 two companies made contributions of over £500m (compared to 8 in 2009)
• FTSE350 firms are expected to pay over £1.4tn in DB pensions to former employees over the next 60 years, of which £250bn will be in the next 10 years
• In 2015, deficit contribution represented 2% of overall staff costs compared to the cost of providing benefit to current staff, including defined contribution (DC) pensions which stands at 4% of overall staff costs. A sign that we are moving in the right direction.
• Despite this move to DC, for every £1 spent on pension provision for staff in 2014, 34p of this was directed towards paying down funding shortfalls on legacy DB benefits
Nick Griggs, head of corporate consulting, commented: “Over the last three years aggregate deficit contributions paid by FTSE350 companies have remained stable. However, given the movements in financial markets over the last six months, and the implications of Brexit, it seems likely we will see a move back to the contribution levels required post financial crisis.
“The future funding needed to meet DB pension obligations is another unwelcome area of uncertainty magnified by the vote to leave the EU.
“FTSE350 companies play an important part in supporting their former employees in their retirement with payments of over £20bn being made to pensioners in 2015. A significant amount when compared to the c£90bn paid by the Government in State Pensions.
“In addition, given the context of auto-enrolment and the impetus on young people to save for retirement, it is remarkable to consider the level of resource UK businesses have to commit to legacy DB pension benefits.”
|
