Pension deficit soars to £62bn across biggest listed firms

Progression of aggregate pension deficit since 2009

Source Barnett Waddingham

The 25 per cent increase came in a second year of comparatively low profit for United Kingdom publicly listed companies.

FTSE 100 firms are continuing to battle significant deficits, with the total deficit in FTSE 100 pension schemes at 31 December 2016 estimated to be £87 billion, up from £17 billion a year earlier.

The findings, from the Impact of Pension Schemes on UK Business report from actuarial consultancy Barnett Waddingham, show that the deficit has risen drastically as a proportion of UK plc profits in the last five years, and is now even higher than it was in the immediate aftermath of the financial crisis.

Separate reports published today by actuaries and consultants Barnett Waddingham and JLT Employee Benefits showed that despite a recovery from the financial crisis, defined benefit pension funds attached to large United Kingdom companies are mostly underfunded.

Furthermore, if profits were to remain steady for the next three years, it would only take a 0.7% fall in bond yields for the deficit to actually exceed annual United Kingdom plc profits by 2019.

In 2009, in the aftershock of the financial crisis, the deficit as a proportion of profits was still considerably lower than it is now, at 60 per cent, the research showed.

One factor that could reduce the deficit in the coming years is mortality, with recent data suggesting that, across the United Kingdom population as a whole, longevity has not improved over the past five years.

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The total cost of pension liabilities at the UK's 100 largest public companies increased from £586bn to £681bn previous year, according to research.

Despite the gloomy outlook, Nick Griggs, partner at Barnett Waddingham, said: "It is also worth bearing in mind that if equity returns continue at the levels seen in the last few years, long-term interest rates rise more than expected and longevity increases do not provide any nasty surprises, the pension deficit problem could solve itself".

"The deficit is essentially the difference between two much bigger numbers, and a few gentle economic triggers could completely change the picture", he said.

Of those companies, 16 had liabilities in excess of £10bn, while 10 had liabilities bigger than their market capitalisation.

This is despite many firms in the FTSE 100 taking steps to plug funding gaps, such as by closing schemes to new employees or to future accrual, and increasing cash contributions by more than £4bn over the year.

Charles Cowling, director at JLT Employee Benefits, said: "Times and markets are still very hard for many companies". After allowing for the impact of changes in assumptions and market conditions, JLT estimates that ongoing DB pension provision fell approximately 12% in 2016.

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