UK Corporate Pensions’ Deficit More than Doubles in December

The funded level of the pension funds of the FTSE 100 companies fell 3% as global equity markets tumbled in December to 97% from nearly fully funded at the end of November, according to consulting firm JLT Employee Benefits’ (JLT) monthly index.

The total deficit of the pension plans of the FTSE 100 companies rose to £20 billion as of the end of December from £1 billion at the end of November, as their aggregate assets fell to £646 billion from £647 billion, while their liabilities grew to £666 billion from £648 billion. However, this was still an improvement from the end of 2017, when the funded level for the FTSE 100 pensions was 95%, and the aggregate deficit was £33 billion.

“2018 was a turbulent year for pension schemes but it was not all negative,” Charles Cowling, JLT Employee Benefits’ chief actuary, said in a release. “Markets were initially strong in the face of considerable political uncertainty and signs emerged that interest rates are at last on the way up. That said, there is no sign yet of an unwinding of the Bank of England’s position on quantitative easing.”

Meanwhile the funded level of all UK private sector pension plans fell even further during December, dropping to 93% from 97% at the end of November, as their aggregate deficit more than doubled to £107 billion from £48 billion during the month. However, this was still below the year-ago figure when the total deficit for all UK private sector pensions was £119 billion.

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Cowling said the latest mortality analysis indicates a sustained deceleration in the rate of improving life expectancy, adding that this is “good news” for pension deficits, which have shown improvement over the past year as the aggregate position for FTSE100 pension plans managed to move into surplus territory in 2018 –albeit briefly—for the first time in a decade.

Cowlings also noted that the Bank of England said Brexit uncertainties have “intensified considerably” in recent weeks, and that these are weighing on UK financial markets, with significant falls in UK equities and pressure on the pound.

“All of this gave rise to increases in the outlook for inflation and a lowering of expectations for economic growth,” said Cowling, “yet still resulted in a unanimous vote from the MPC to keep interest rates unchanged and markets are not pricing in a rise in interest rates until the end of 2019. But that could all change.”

Tags: Charles Cowling, Corporate Pension, FTSE 100, JLT Employee Benefits, UK

Jair Bolsonaro, Brazil’s new president, needs to tackle the nation’s pension reform, and a senior aide says the new leader’s privatization program is still under evaluation.

Bolsonaro was sworn in on Tuesday, and according to Chief of Staff Onyx Lorenzoni, had a successful first meeting with his full cabinet. Lorenzoni expects each minister to announce their highest priority early next week.

The new president wants to liberalize Brazil’s economy, eliminate socialism, end gang activity, and establish conservative approaches in education and other areas.

He announced plans Wednesday to work toward setting up pension privatization, tightening prison sentencing guidelines, and giving the Agriculture Ministry control over indigenous land claims.

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“We will soon attract initial investments of around 7 billion [real], with rail concessions, 12 airports and 4 port terminals,” Bolsonaro tweeted. That translates to $1.86 billion in US dollars. “With the confidence of the investor under conditions favorable to the population we will recover the initial development of the infrastructure of Brazil.”

Bolsonaro did not provide further details. In his inauguration speech, he promised to “work tirelessly so that Brazil reaches its destiny,” adding that his “vow is to strengthen Brazil’s democracy.”

Paulo Guedes, the nation’s new economy minister and a large proponent of mass privatization, said in his Wednesday swearing-in speech that he would reduce taxes and fix Brazil’s unstable social security system, which is becoming too costly for the country to run due to its generous retirement benefits.

Men can retire at age 65, while women can cease working at 60 to receive their full benefits. If they want to retire early, Brazilians can do so at 55, but are only able to collect 70% of their final salary for the rest of their lives.

Due to pensioners choosing to collect their rewards at an increasingly higher rate, a troubled economy, and a titanic public debt, the social security system is one of the first ways Brazil’s leaders are looking to fix the situation.

Guedes also said he wants to shave Brazil’s tax debt to 20% of gross domestic product, from 36%, free the credit market from state banks, and cut back on protectionism.

Tags: Brazil, Jair Bolsonaro, Onyx Lorenzoni, Paulo Guedes, Pension Reform