Martin Hooper, Associate at Barnett Waddingham, said: “This significant reduction in overall deficits represents a positive development following the deterioration seen last year, and the limited improvements seen in the years before despite substantial contributions being paid to these schemes. An increase in the average discount rate has helped to reverse the rise in deficits witnessed in 2014 and this coupled with a period of stability for long-term inflation expectations has been a major factor in seeing these deficits fall.”
Results from the survey also show:
• The average discount rate increased by 0.2% to 3.8% p.a. from 3.6% p.a. in 2014
• Average IAS19 funding level has increased in comparison to the previous year - to 92%, which is likely due to the increase in discount rates
• The average RPI inflation assumption adopted by companies in the survey was 3.1% p.a. representing no overall change from 2014
• The average CPI assumption adopted as at 31 December 2015 was 2.1% p.a. (2014: 2.1% p.a.), around 1.0% p.a. lower than RPI – similar to the 1.0% p.a. gap that was observed in 2014.
• The average real salary growth assumption was -0.2% p.a. in 2015, which represents a fall in real salary growth from -0.1% p.a. in 2014 for the same companies
• The average life expectancy assumption increased by 0.1 years in 2015 demonstrating a small increase in the average life expectancy in 2015 of 23.4 years compared to 23.3 years in 2014 (based on a male aged 65 years)
The survey, in its fifteenth year, focuses on the assumptions adopted by FTSE100 companies for determining the value of their pension liabilities for accounting purposes.
The full survey can be viewed here.
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