Top companies and their pension trustees are facing some tough talking about plugging funding deficits during the next few weeks.
Although the deficit gap has appeared to close a little in recent months, many FTSE 350 companies – the largest private firms in the UK and some of the country’s biggest employers – are under pressure to pile more cash into their pensions.
The Pension Regulator has signalled that tighter compliance to protect employee cash is on the way and accompanied the warning with an announcement that around £1 billion has been clawed back with new anti-avoidance powers.
This comes at a time when a lot of companies are revaluing their funds in a move that will see the pension gap benchmark change over the coming months.
How the funds stand
Consultants JLT Employee Benefits track how company pensions are performing every month.
As of June 30, they calculated that the FTSE 350 pensions had assets of £751 billion but liabilities of £809 billion, leaving a £58 billion funding gap.
This compares to assets of £694 billion and liabilities of £766 billion giving a £72 billion deficit a year ago.
For all private workplace pensions, assets were estimated at £1,560 billion on June 30, against liabilities of £1,736 billion leaving a £176 billion black hole to fill, compared with a £209 billion shortfall last year.
JLT Employee Benefits director Charles Cowling said: “This last month has seen a General Election and more political turmoil, yet markets continue to hold up well. As a result, DB pension deficits are drifting lower.
Regulator flexes muscles
“However, recently we have seen increasing evidence of the Pensions Regulator’s (TPR) willingness to flex its muscles when it comes to the funding of pension schemes.
“The TPR has also said that they would intervene in circumstances where they thought total payments to shareholders were being prioritised over funding a pension scheme.
“Given too that TPR has just been granted £3.5 million of additional funds to boost its compliance and enforcement work, it is evident that companies and trustees can expect a lot more scrutiny from the regulator going forward.
“Many pension schemes will be carrying out actuarial valuations now and beginning to agree new deficit recovery contributions. Even though deficits may have improved a little in recent months, for many pension schemes they will still be much higher than in 2014 when deficit contributions were last agreed.”