Britain’s largest company pension schemes are continuing to flourish as they climb towards almost 100% funding.
The combined deficit of the largest listed companies that make up the FTSE 100 dropped by three-quarters in June, says pension monitor JLT Employee Benefits.
The companies still had an aggregate pension deficit of £1 billion at the end of June 2018, but this was down a massive £3 billion compared to the end of May.
Their assets total £673 billion against liabilities of £674 billion- the liabilities are the amount the companies must pay out to current pensioners and those in the scheme who are yet to draw any retirement income.
The change in fortunes from deficits of hundreds of billions in the past are due to rising returns from corporate bonds and equity markets.
The company pension trustees now need to earn a return of less than 3% a year to remain in the black.
JLT Employee Benefits deputy chief actuary Murray Wright said this yield is an “achievable target for most schemes, even those running a low risk investment strategy.
“Half-year results are strong for pension schemes when compared to the position 12 months ago, and against December 31, 2017.
“Rises in corporate bond yields, alongside solid equity market returns have contributed to lower reported deficits.”
Bull market warning
“FTSE 100 companies are close to showing an aggregate surplus for the first time in a decade. This milestone highlights the striking point that these schemes are now in a position where they need to earn a return of less than 3% a year on their assets over the long term to allow them to pay benefits as they fall due to members.”
Figures also showed FTSE 350 companies – the UK’s 350 largest listed firms – are 99% funded with a deficit of £5 billion, while pensions for companies of all sizes are 98% funded but remain £34 billion in the red, down from £43 billion in May.
“A bull market that is almost 10 years old can’t be relied upon to keep delivering results,” warned Wright. “Companies need to de-risk and run an integrated funding and investment strategy.”
“The statistics relate to corporate defined benefit (DB) pensions offering a guaranteed, index-linked final salary and other benefits.