UK Pension Funding Levels Continues to Rise

The funding position of all UK private sector defined benefit (DB) pension plans rose 1% from the end of December, and 4% from the same time last year to 93% as of the end of January, according to JLT Employee Benefits.

For all UK private sector pension plans, assets were down £69 billion to £1.56 trillion from the previous month, but were up £26 billion from the same time last year. At the same time, total liabilities fell £95 billion to £1.68 trillion from the previous month, and were down £34 billion from the same time last year, bringing their funding level to 93%, which is up 1% from the previous month, and 4% from the end of January 2017.

Total assets for the pension plans of FTSE 100 companies fell £10 billion to £678 billion during January, while their total liabilities declined £16 billion to £713 billion, raising their overall funding level 1% to 95%. Meanwhile, their deficit shrunk £6 billion to £35 billion.

Compared to the same time last year, total assets for the FTSE 100 pension plans are up £22 billion from £656 billion, while total liabilities are up £4 billion from £709, which improved their funding level by 2%.

Assets for the pension plans of the FTSE 350 companies fell £12 billion from the end of December to £765 billion, while their liabilities fell £20 billion to £809 billion, which also brought its funding level up 1% to 95%. The change brought their total deficit down £8 billion to £44 billion.

Compared to the end of January 2017, total assets for the FTSE 350 pension plans rose £24 billion from £741 billion, while liabilities increased only £4 billion to £809 billion, which moved their funding level up 3% for the year.

“Markets have seemingly been reasonably benign for pension schemes this month, as overall reported pension deficits continue to drift downwards,” said Charles Cowling, director of JLT, in a release. “However, this masks frantic activity within a few companies with large pension schemes.”

Cowling said that for a lot of companies, the pension deficit used for calculating the cash funding required to be paid by the employer is significantly higher than the pension deficit reported in the employer’s accounts. He added that current actuarial valuations are likely to show a need for significant increases in cash funding.

“There are many companies with large pension schemes which are now going to come under increased pressure to prioritize the financing of pension deficits over returns to shareholders,” said Cowling. “This can only mean that we are likely to see more companies following the Capita example, with share prices suffering as a result.”