Centrica's defined benefit (DB) pension deficit soared by 855% in 2016, its latest annual accounts have revealed.
The company, which operates three DB schemes in the UK, saw its total liabilities climb by 34% over the twelve months, moving from £6.8bn at the end of 2015 to £9.1bn on 31 December 2016 on the IAS 19 accounting measure.
This more than offset an increase in asset value, which creeped from £6.6bn to £7.9bn. Overall, the pension deficit leapt from £119m to £1.1bn over 2016.
The group, which includes British Gas and Scottish Gas, blamed falling gilt yields for the increase, which caused it to revise its discount rate down from 3.9% to 2.7%.
In the report, it wrote: "The continued fall in gilt rates and the low yield environment has impacted the discount rate on which our pension deficit is calculated, giving rise to a higher liability, as well as increasing the cost of providing new pension benefits. The group has taken steps to mitigate, as far as possible, these increased costs to help remain competitive and support the group's growth."
The final salary Centrica Engineers Pension Scheme closed to new members in 2006, but has a career average segment which remains open to service engineers.
Meanwhile, the final salary Centrica Pension Plan and Centrica Pension Scheme closed to new members in 2003. However, the Centrica Pension Scheme also has a career average section which closed to new members in 2008.
The company also has DB schemes for Irish and Canadian employees, although the UK benefits make up the vast majority of its obligations.
The schemes' latest triennial valuations, dated 31 March 2015, showed a deficit of £1.2bn on the technical provisions measure. This was up from £331m at the March 2012 valuation.
Following the valuations, the group agreed an asset-backed contribution arrangement, including £77m of payments last year, £55m this year, and £22m each year between 2018 and 2022. From 2023 to 2026, payments will total £5m per year.
The company has also committed to a £995m security package in the event it cannot meet its pension obligations.
In 2014, the company undertook a pension increase exchange exercise across its DB schemes, resulting in a £10m reduction in its liabilities.
The schemes have a significant allocation in return-seeking assets and plans to de-risk the scheme if asset movements hit a certain threshold above liabilities.
Across the UK DB schemes, there are 37,322 members, of which roughly a third remain active.
The firm also made £13m of contributions into its defined contribution scheme via a salary sacrifice arrangement over the year.
Centrica had not responded to a request for comment at the time of publication.
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.