FTSE 100 pension deficit falls despite drop in contributions

THE UK’s largest companies paid less into their pension schemes last year, despite government measures to increase saving.

LCP’s annual Accounting for Pensions survey found FTSE 100 businesses paid £20.2bn into schemes in 2013, compared to £21.9bn in 2012. This is despite auto-enrolment policy increasing membership numbers.

Improved investment performance resulted in IAS19 deficits falling to £37bn at the end of June, compared to £43bn in 2013. Large companies continue to show strong interest in de-risking their defined benefit (DB) plans, as BT’s recent £16bn longevity swap deal showed.

A total of 38 FTSE 100 companies have introduced guarantees, pledges or charges over assets to their schemes to provide greater security. This in part explains to reduction in cash contributions to schemes, LCP suggested.

Government initiatives announced in this year’s budget, which will allow full flexibility in drawing down defined contribution (DC) funds, and plans to introduce new collective DC schemes mean “the pensions outlook is as bright as it has been for many years”, LCP partner Bob Scott said.

“The 2014 budget makes saving for retirement more attractive for individuals. Economic growth brings investment opportunities for pension schemes and their sponsors. And increased capacity in the insurance market shows companies that there is an end in sight to their DB pensions issues,” he added.

FTSE 100 companies could more than half their collective deficits if they switched from RPI to RPIJ inflation measure in calculating liabilities, the research also found. If the measure, which was recognised as a national statistic in November 2013, was adopted widely, it could save businesses as much as £20bn.