Research from JLT reveals that since it made its entrance into the FTSE 100 index in December last year, Royal Mail Group has overtaken Prudential to become the best funded of all FTSE 100 company pension schemes, by some margin.
The inclusion of the postal company to the index has had a marked impact on the results. Of the 18 companies that disclosed a pension surplus in their most recent annual report and accounts, the three best funded schemes are now Royal Mail Group (133% funded), Prudential (119% funded) and Standard Life (116% funded). Royal Mail Group also has the 5th largest spend on ongoing defined benefit provision. 70 companies disclosed pension deficits.
JLT says that the impact of the transfer of the majority of the Plan’s assets and liabilities to the Government as part of the privatisation of Royal Mail Group provided the company with an unanticipated balance sheet gain of over £3 billion.
Overall, the research, which analyses the funding position of FTSE 100 defined benefit (DB) pension schemes, found that the combined aggregate deficit of the FTSE 100 schemes has deteriorated by £8 billion to £57 billion over the 12 months to 31 December 2013 despite the arrival of Royal Mail Group. Meanwhile, the total disclosed pension liabilities of the FTSE 100 companies have risen from £475 billion to £534 billion.
Five FTSE 100 companies have total disclosed pension liabilities greater than their equity market value, which could have a significant impact on corporate decision-making in the boardroom, while a total of 14 companies have disclosed pension liabilities of more than £10 billion. More positively, a total of 18 companies have pension liabilities of less than £100 million, of which 11 companies have no defined benefit pension liabilities at all.
In total, the amount contributed to FTSE 100 company pension schemes was £9.3 billion, down from £12.6 billion in the previous year. BAE Systems led the way with a massive deficit contribution of £0.9 billion (net of ongoing costs), but 63 other FTSE 100 companies also reported significant deficit funding contributions in their most recent annual report and accounts.
Charles Cowling, Director, JLT Employee Benefits, comments: “Royal Mail Group’s recent high profile IPO has catapulted it straight into the FTSE 100. However it is the transfer of the majority of the Plan’s assets and liabilities to the Government generating an unanticipated balance sheet gain of £3 billion that has propelled them to the top of the list of best funded schemes in the FTSE 100.
“Funding for most FTSE 100 schemes however remains a major issue and 70 schemes still remain below the water-line. For many of these, the Holy Grail of buy-out remains a long way away but concerted efforts from the likes of BAE Systems who added £0.9 billion to their scheme will march them ever closer.
“With the move from equities towards bonds continuing overall and the recent Budget announcing the possibility of a ban on members transferring out of defined benefit and into a defined contribution pension schemes, we expect those schemes that are in-range to start preparing for buy-out. For those with larger funding gaps the use of buy-ins may help ease some of the pressure to de-risk. However, companies that are slow off the mark to take advantage of the potentially limited opportunity to remove pension liabilities from their balance sheet will have to contend with a capacity crunch in the IFA market as the potential demand for advisors that can support these exercises exceeds supply.”
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