UK Private Pension Plans Dip Back into Deficit Territory

Just one month after finally breaking into surplus territory for the first time in a decade, the defined benefit plans of the FTSE 100 companies slid back into the red at the end of August, registering an aggregate deficit of £3 billion ($3.9 billion), according to consulting firm JLT Employee Benefits.

“Markets seem to be holding their breath,” Charles Cowling, JLT’s chief actuary, said in a release.

The pension plans of the FTSE 100 companies had aggregate assets of £675 billion against liabilities of £678 billion as of Aug. 31, compared to £676 billion in assets against £673 billion in liabilities as of the end of July. However, the funded level is still close to 100%, and is a significant improvement from the same time last year, when assets totaled £685 billion on liabilities of £740 billion for a funded ratio of 93%. 

The pension plans of the FTSE 350 had total assets of £764 billion, and liabilities of £771 billion for a deficit of  £7 billion, and a 99% funded level as of the end of August, compared to assets of £765 billion and liabilities of £765 billion for a funded level of 100% at the end of July. At the end of August 2017, the FTSE 350 pension funds had total assets of £756 billion on liabilities of £842 billion for a funded level of 92%.

For all UK private sector pension plans, total assets were £1.579 trillion, on liabilities of £1.619 trillion, for a funded level of 98%, compared to assets of £1.584 trillion on liabilities of $1.606 trillion for a funded level of 99% at the end of July. At the end of August 2017, all UK private sector plans had aggregate assets of £1.606 trillion on liabilities of £1.805 trillion, for a funded level of 89%.

Cowling said that many pension trustees are currently scrutinizing their triennial valuation results and reviewing funding and investment strategies. He said that because many pension plans have seen improved funding positions since their last valuation three years ago, its possible 2018 may see a reduced demand for additional pension funding on employers.

“It should therefore be an ideal opportunity for pension schemes to lock in their position and switch out of risky assets into investments which more closely match their liabilities,” Cowling said. “Having spent 10 years clawing their way back into surplus, it would be a sad day for pension schemes if all that progress was lost in another crisis of confidence in markets.”