Interestingly the research also finds that while £65bn is the highest aggregate defined benefit (DB) deficit recorded for the FTSE350 index since 2009, the UK’s largest public companies contributed less towards DB pension scheme deficits than at any time since 2009.
The research, conducted by Barnett Waddingham for the fifth year running, highlights the impact DB, or final salary, pension schemes are having on FTSE350 businesses.
Key findings from the research include:
-
In 2014, employers committed over £7bn to clear funding shortfalls, although this is over 40% less than the average figure paid in each year from 2009 to 2012, and nearly 20% less than payments in 2013.This may reflect the Pension Regulator’s (TPR) revised Code of Practice for DB schemes although whether this trend continues is unclear at this stage.
-
Oil and Gas firms in the FTSE350 saw their combined pension deficit more than double to £12.6bn in 2014 compared to £6.2bn in 2013.
-
The amount contributed by employers into defined contribution (DC) pension arrangements increased by nearly one fifth in 2014, reflecting the new impetus towards DC savings under the auto-enrolment regime as well as employees being moved into DC arrangements as DB schemes continue to close to accrual.
-
Despite this move to DC, for every £1 spent on pension provision for staff in 2014, 32p of this was directed towards paying down funding shortfalls on legacy DB benefits
-
Under the European pension supervisor’s (EIOPA) new stress test, the adverse market scenario would see the pension’s funding shortfall for UK plc increase to around 10% of total stock market value.
-
Underlining the risk associated with DB schemes, the research found that 80% of companies with material pension shortfalls recognise their DB scheme to be a principal strategic risk for the business
Nick Griggs, Head of Corporate Consulting at Barnett Waddingham, commented:
“Whilst deficit contributions have fallen to the lowest level since our research began in 2009 they still represent a significant cost for what is largely becoming a legacy benefit. The impact on shareholders, who might reasonably expect a 13% increase in their annual dividend were DB schemes not to exist, remains substantial. The impact on business investment is impossible to quantify but the persistence of these deficits despite the contributions being paid must be having an impact for some in the FTSE350.
“After a period when large scale exercises were often undertaken in an attempt to remove significant chunks of liabilities we are now in a period where embedded retirement options and targeted exercises are the norm to gradually chip away at the liabilities over time.
“The outlook for IAS19 deficits remains uncertain with continued volatility in the key financial markets which drive the assumptions used to value the IAS19 liabilities”.
|
