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FTSE 100 Companies Face "Material Risk" from Pensions Schemes

Strategic Insights

— 1 min read

A new report by JLT Employee Benefits reveals that several FTSE 100 companies are exposed to significant pension scheme liabilities, with six firms' total disclosed pension liabilities almost doubling their equity market value. The total pension deficit in FTSE 100 schemes has reached £89bn, a deterioration of £30bn from the previous year. Despite this, companies are increasingly turning to bonds and liability-driven investment strategies to mitigate risk and reduce investment volatility.

Key Takeaways:

  • Six FTSE 100 companies, including BAE Systems, International Airlines Group, RSA, and Royal Bank of Scotland, have total disclosed pension liabilities almost double their equity market value.
  • The total pension deficit in FTSE 100 schemes has grown to £89bn, a £30bn increase from the previous year.
  • Total disclosed pension liabilities among FTSE 100 firms rose from £557bn to £615bn, while sponsor contributions fell from £14.6bn to £13.7bn.
  • FTSE 100 defined benefit pension schemes have increased their asset allocation to bonds from 55% to 60% during the period.
  • Average bond holdings among pension schemes could reach 70% within five years and 90% within 10 years.
  • For many companies, the main obstacle to switching to bonds is a large deficit or lack of funding commitment.

Statistics:

  • £89bn: total pension deficit in FTSE 100 schemes as of 31 March.
  • £30bn: deterioration in total pension deficit from the previous year.
  • £557bn: total disclosed pension liabilities among FTSE 100 firms a year ago.
  • £615bn: total disclosed pension liabilities among FTSE 100 firms as of 31 March.
  • £14.6bn: sponsor contributions a year ago.
  • £13.7bn: sponsor contributions as of 31 March.
  • 55%: average bond holdings among pension schemes a year ago.
  • 60%: average bond holdings among pension schemes as of 31 March.
  • 70%: expected average bond holdings among pension schemes within five years.
  • 90%: expected average bond holdings among pension schemes within 10 years.

Sources:

  • JLT Employee Benefits' quarterly report on the FTSE 100 and their pension disclosures, out today.
  • Charles Cowling, director at JLT Employee Benefits.

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