UK - The FTSE100 Index would have to smash its all-time high by more than 1000 points before UK pension schemes have sufficient assets to meet their liabilities in full, industry experts warn.
The development will be cause for grave concern among British industry, which is relying on a market recovery to alleviate the current funding pressures its pension schemes are posing.
Mercer Human Resource Consulting estimates that the FTSE100 would have to reach an “impossible” 7800 before schemes are able to meet their liabilities in full – as will be required by the government for any employer wanting to wind-up its DB scheme.
The problem is that a five-year shift away from UK equities has meant that schemes are no longer geared to producing the level of returns needed to meet buyout costs – a figure Mercer puts at £300bn.
WM Company executive director Eric Lambert explained that the average scheme now holds 37.9% in domestic equities compared to 55% in 1998.
“But schemes are still relying on equities, particularly domestic, to get bulk returns,” he said.
Mercer senior partner Deborah Cooper said that – in accordance with WM figures, and assuming world equities grow in line with UK equities – the FTSE100 would have to grow by over 80% before schemes find themselves solvent on a buyout basis.
She stressed that firms could not rely on the equities market to solve their schemes’ funding crisis.
The Confederation of British Industry senior policy officer Jamie Bell warned that many companies are “hoping to ride out” the market as a solution to mounting pensions deficits, and may be unaware that this in itself will not be sufficient to fund their ailing DB schemes.
He said: “More companies are looking to get out than stay in the DB market.
“But many will find that they can’t because of the new rules coming in and the current state of the equity market.”
UK inflation unexpectedly rose to 2.7% in August, beating analysts' expectations of a drop to 2.4% from 2.5% the previous month.
The Pensions Advisory Service (TPAS) helped 187,000 people in 2017/18, a 9% fall on the previous year despite setting up special helplines for specific scheme members.
The Liberal Democrat party has passed a motion pledging to cap tax-free lump sums under Freedom of Choice at £40,000 if elected into government.