FTSE 100 Pension Liabilities Increase by £95 Billion

The total cost of pension liabilities at FTSE 100-listed companies grew £95 billion to £681 billion for the year ended Dec. 31, 2016, despite many firms barring new employees from defined benefit (DB) plans, and increasing funding by more than £4 billion, according to research by pension and benefits consultancy JLT Employee Benefits.

JLT’s research found that 10 FTSE 100 companies have total pension liabilities greater than their equity market value, and some are even worse off. For example, International Airlines Group, the holding company of British Airways, has pension liabilities that are three times its equity market value of £8 billion, and aerospace and defense company BAE Systems’ total disclosed pension liabilities are almost double its £18.6 billion equity market value. Additionally, 16 companies have pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell, with £73 billion in liabilities.

“Times and markets are still very difficult for many companies,” said Charles Cowling, director, JLT Employee Benefits. “This report shows that the trend of DB closures continues at the UK’s largest companies, and we expect that defined benefit pension schemes will have all but disappeared from the private sector within the next year or so.”

According to the report, changes in economic conditions, increasing life expectancy, and aggressive pension regulations have contributed to the sharp increase in pension liabilities over the past few years. JLT says that many companies are reacting to rising liabilities by closing pension plans to future and even current employees.

“However, this is having little to no impact on reducing liabilities,” said JLT. “After allowing for the impact of changes in assumptions and market conditions, JLT estimates that ongoing DB pension provision fell approximately 12% in 2016.”

The report found that only 53 FTSE 100 companies are still providing more than a handful of current employees with defined benefit plans, while only 21 of the FTSE 100 are still providing DB benefits to a significant number of employees (defined as incurring ongoing DB service cost of more than 5% of total payroll).

In 2016, £17.6 billion was contributed to FTSE 100 pension plans, up from £13.3 billion in the previous year, according to JLT, which also said that the total deficit in FTSE 100 pension plans at the end of 2016 was an estimated £87 billion.

Only 24 FTSE 100 companies disclosed a pension surplus in their most recent annual report and accounts, according to the report, while 66 companies disclosed pension deficits. The company with the best funding position, according to JLT, is postal services provider Royal Mail, which reported a 93% surplus, while the worst-funded pension plan is tourism company TUI, which is running a 35% deficit.

JLT said that the rise in liabilities continues despite an increase in pension fund contributions from FTSE 100 companies. In 2016, there was total deficit funding of £11 billion, up from £6 billion the previous year, and more than half of the FTSE 100 companies reported significant deficit funding contributions in their most recent annual report and accounts.