Company Pensions Still £34 Billion In The Red

Britain’s biggest companies are still fighting with pension debt of more than £30 billion.

The 350 largest companies listed on the FTSE stock exchange indices are in the red to the tune of £34 billion – an increase of £5 billion over the third quarter of 2018.

A fall in the value of pension assets was cited as partly to blame for the widening gap. Their value dropped by £2 billion to £787 billion.

The rest was blamed on rising liabilities – the amount owed to pension members in the company schemes.

Alan Baker, a pensions expert at Mercer, said: “Despite stability in the overall funding gap in September, we saw significant swings in asset and liability values.

Market volatility

“Market volatility is putting recent improvements in the funding deficit at risk and trustees and sponsors should act now to assess the risk they are running and ensure they have plans in place to protect them from any future downside.”

The company estimates the total value of pension assets of FTSE350 companies at 31 December 2017 was £785 billion, compared with estimated aggregate liabilities of £857 billion.

The gap represents how much the companies owe retirement savers that is not supported by investments.

The pension black hole is narrowing with help from a surprising quarter.

Data from the Office of National Statistics suggests mortality – the rate of deaths in the country – is rising.

Mortality rate increasing

Actuaries work out pension liabilities based on longevity and for many years, the statistics have shown people are living longer, which means pensions must fund payments to members for longer as well.

But if lifespans are shortening, that boosts the cash in a pension fund.

The ONS says dementia and diabetes are two key factors affecting longevity.

Many actuaries base their calculations on old data which is yet to show the increasing mortality rate, but when the statistics work their way into the figures, expect to see FTSE350 pension liabilities fall and the deficit gap to narrow.

“While the financial gains can be positive, the recent slowdown in longevity improvements has made forecasting longevity much more difficult. This causes a headache for all those involved in the industry,” said one industry source.

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