Over 50% of FTSE 100 schemes report 'significant' deficit contributions totalling £14.8bn
Some 53 FTSE 100 sponsors made "significant" deficit recovery contributions (DRCs) to their defined benefit (DB) schemes over the year to 31 March 2018, according to JLT Employee Benefits.
A total of £14.8bn was paid into schemes in the form of DRCs, the consultancy's quarterly report covering all FTSE 100 companies showed, down from £17.4bn in the previous year.
However, this was £6.6bn more than the cost of benefits accrued during the year, and therefore represents only £8.2bn of funding towards reducing pension scheme deficits.
The figures come from analysis of all FTSE 100 annual reports and accounts for years ending on or before 31 March 2018 and published by 30 September 2018.
JLT's report outlined that the increase in contributions was due to companies offsetting balance sheet risks with cash injections. The total deficit of FTSE 100 schemes as at 31 March was estimated to be £33bn - an improvement of £2bn from the position 12 months before.
The study further showed that just five FTSE 100 pension schemes paid more in pension contributions than dividends to shareholders.
The schemes with the highest excess of dividends over deficits, at around £3.9m, were Royal Dutch Shell and Unilever with £3.9m, suggesting "these companies could not only wipe off their deficit right away but also potentially contribute significantly towards de-risking opportunities", said JLT.
A further 37 FTSE 100 companies could have settled their pension deficits in full with a payment of up to one year's dividend; six companies would need a payment of up to two years' dividends, and eight companies would need a payment of more than two years' dividends.
The overall funding position of FTSE 100 pension schemes including all pension arrangements in the UK and overseas had also improved over the year. Among those with the highest levels of funding were Standard Life at 151%; and Royal Mail Group and Old Mutual plc at 147%.
Liabilities
The total disclosed pension liabilities of FTSE 100 DB schemes also fell from £705bn to £692bn. A total of 18 companies disclosed pension liabilities of less than £100m, some because they did not sponsor a DB scheme. Among those with the biggest pension liabilities were Royal Dutch Shell with nearly £74m in liabilities, and BT with over £57m.
JLT Employee Benefits chief actuary Charles Cowling said it was encouraging to see companies "slowly getting to grips with" their scheme funding problems.
"The inherent tension between funding pension obligations and paying dividends persists across the UK's blue-chip index, but the tide is starting to turn among some sponsors," he said.
A number of companies also reported significant changes to investment strategies, with eight FTSE 100 schemes changing their bond allocations by more than 10%.
Among those with the greatest change in bond allocation were Severn Trent, with a 24 percentage point increase to 76%, and Legal and General with a 23% percentage point increase to 92%.
"Looking ahead, balance sheet resilience could be crucial over the coming months as we approach the Brexit deadline," Cowling continued. "Corporate sponsors and schemes should think carefully about their risk exposures through a period of heightened political and potential market volatility.
"With expectations of muted growth into 2019, locking in gains and improving liability matching may help sustain funding positions through times of uncertainty."
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