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Deloitte actuaries estimate that the pension schemes of the FTSE 100 companies now have an aggregate surplus relative to the accounting value of their liabilities. Pension deficits have fallen by £40 billion since the start of the year and are at the lowest level for more than five years.
The improvement has been fuelled by an increasing UK equity market and falls in the prices of bonds used to measure pension scheme liabilities.
Most pension schemes invest a significant proportion (60% on average) of their assets in the stock market. The value of UK shares has increased by 9% since the start of the year, and the Dow Jones broke the 13,000 barrier for the first time in its history last month.
The price of bonds - typically used to measure pension liabilities - have fallen over the same period and Deloitte actuaries estimate that this alone has wiped around £25bn off the value of pension deficits.
David Robbins, a Pensions partner at Deloitte, comments: “The UK’s top 100 companies currently pay around £15bn per annum into their pension schemes. Some companies have changed the design of, or shut their final salary schemes. However, the key driver behind the recent improvements has been market movements, both in the equity and bond markets”.
Pension schemes that have maintained a significant exposure to the equity market have benefited the most. An issue for some of these companies however, will be how to manage the risk that surplus becomes “stranded” in the scheme, as it is near impossible for the employer to take a refund from a pension scheme.
David Robbins adds “Some companies are taking a one way bet with their pension schemes. If the equity market falls, the company needs to pay in more to plug the loss, but if equities rise further the company may not be able to benefit from a surplus.”
However, emerging surpluses may also be eaten away by improvements in scheme members’ future life expectancy which exceed the allowance currently made in the calculation of scheme liabilities. David Robbins, comments “We believe that companies are under increasing pressure from regulators, auditors and their shareholders to reconsider their allowance for increasing life expectancy.”
Download our press release Pension schemes now in surplus with supporting graphs (PDF, 218 KB).
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Notes to Editors
The above analysis is based on Deloitte calculations of the FTSE 100 companies using disclosed FRS 17 and IAS 19 information on their UK and overseas pension and post retirement benefit arrangements.
About Deloitte Total Reward and Benefits Limited
Deloitte Total Reward and Benefits Limited is a multi-disciplinary consulting group comprising 100 actuaries and other pensions and benefits specialists, which focuses on delivering high quality pensions advice to employers and scheme trustees. Deloitte Total Reward and Benefits Limited is authorised and regulated by the Financial Services Authority.
About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions. Services are provided by member firms or their subsidiaries and not by DTT. Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority. The information contained in this press release is correct at the time of going to press.
