According to JLT Pension Capital Strategies, the total deficit of FTSE 100 defined benefit (DB) pension schemes has deteriorated a further £22 billion in the last 12 months to reach a total at the end of June of £55 billion.
JLT said the pension deficit represents a material risk to the business at a number of companies, with 11 companies in the FTSE 100 having liabilities in excess of their market capitalisation. At International Airlines Group, the liabilities are five times the market cap, while at BAE Systems, BT and Royal Bank of Scotland, liabilities are more than double the market cap. Only 16 companies had a surplus in their most recent report and accounts, while 69 had a deficit disclosed. As a result, many companies have made extra contributions to reduce deficits, with BT making a deficit contribution of £1.9 billion.
Looking at average asset allocation, JLT said the allocation to bonds is now 56%, up from 50% a year earlier. JLT Pension Capital Strategies managing director, Charles Cowling, said: “We have reached a stage where scheme deficits are widening substantially on an annual basis. Whilst large companies are making the effort to plug the gaps, rather like quantitative easing there will be a law of diminishing returns and one day the music will stop.” He added: “As well as continued flows into bond allocation, this year we expect to see a trend towards companies looking at alternative sources to fund their pension schemes. We have already seen companies make use of property partnership deals to help tackle their pension deficits.”