Pension schemes are legally required to undergo an actuarial valuation regularly to determine whether the pension scheme has insufficient assets to pay scheme members. Around 30 FTSE 100 companies are scheduled to have their actuarial valuation in 2015, including Lloyds, Shell, BP, International Airlines Group (British Airways), HSBC and Aviva.
According to JLT’s report on FTSE 100 pension schemes, the total amount contributed in the latest accounting year amounted to £14.1 billion, down from £16.3 billion in the previous accounting year. This is more than the £5.9 billion cost of benefits accrued during the year. It therefore represents £6.9 billion of funding towards reducing pension scheme deficits, which is a decrease on the previous year's deficit funding of £9 billion. HSBC led the way with a deficit contribution of £0.5 billion (net of ongoing costs), but 55 other FTSE 100 companies also reported significant deficit funding contributions.
The total deficit in FTSE 100 pension schemes at 31 December 2014 is estimated to be £80 billion. This is a deterioration of £26 billion from the position 12 months ago. Only 20 companies disclosed a pension surplus in their most recent annual report and accounts whilst 67 companies disclosed pension deficits.Meanwhile, their total disclosed pension liabilities have risen from £534 billion to £545 billion. A total of 16 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell with disclosed pension liabilities of £54 billion.
The average pension scheme asset allocation to bonds has very slightly increased from 56% to 57%. Six years ago, the average bond allocation was only 40%.
Charles Cowling, Director, JLT Employee Benefits, comments: “2015 is going to be another tough year for pension schemes – particularly those with triennial actuarial valuations. We expect to see some difficult negotiations between trustees and employers and inevitably there are going to be demands for increases (potentially significant increases) in employers’ funding contributions as pension scheme deficits continue to grow.”
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