The pension schemes of Britain’s 100 biggest firms are back in the black after a decade of underfunding.
Direct benefit pension accounts for the FTSE100 companies – which are the country’s largest incorporated businesses by market capitalisation – just nudged the 101% mark.
This is the first time the companies have recorded a surplus since the financial crash of 2008, according to analysis of their 2017 performance by consultants Lane, Clark and Peacock.
During last year, pension balance sheets moved from £31 billion in deficit to £4 billion in surplus.
In the four months to the end of April, they moved another £20 billion into the black.
Good news for retirement savers
The swing is attributed was due to:
- Companies paying in £13 billion, even though the amount was lower than 2016’s £17.3 billion;
- Strong investment growth
- Accounting changes related to factors like longevity, where the latest statistics show people are not living for as long as predicted
Despite the good news for retirement savers, the consultants warn that more accounting changes are on the way that could worsen company balance sheets and leave them with problems raising capital or paying dividends.
The study also disclosed that companies pay more in dividends each year than they do in pension contributions – with around £80 billion going to shareholders.
Significant deficits remain
Phil Cuddeford, a consultancy partner and lead author of the report, said: “If balance sheet accounting changes go ahead as feared, the FTSE 100 are likely in for a nasty shock. There are some companies which could be exposed to balance sheet hits of well over £1 billion, a stark reality not likely to be well received by either markets or shareholders.”
“For one of the first times in years, FTSE 100 pension schemes have clearly swung into surplus when measured on an accounting basis. Although that’s good news, it is essential that corporate sponsors don’t think they’re out of the woods just yet.
“History has proven that such accounting surpluses can quickly be wiped out by deteriorating market and economic conditions. On trustees’ typical pension scheme funding basis, significant deficits remain, and the persistent gap between dividend payments and scheme contributions is likely to be scrutinised more intensely in the wake of the high-profile collapses of Carillion and BHS.”
