On the go: FTSE 100 companies have seen the funding position of their defined benefit schemes remain broadly unchanged since the financial crisis, despite sponsor contributions of more than £200bn, a report by LCP has shown.
The report, published on Monday, revealed that the overall combined year-end IAS19 funding position stood at around £10bn, in line with the figures registered in 2007.
LCP stated that most of the £200bn extra funding has been cancelled out by market movements and, by December 31 2020, the aggregate position “had improved only marginally”,
The contributions and the positive investment returns observed have seen the total FTSE 100 pension assets more than doubling in size, but these gains “have been completely wiped out by falls in yields increasing liabilities”, LCP stated
The report also revealed that potential changes to the DB funding code could cause FTSE 100 deficit contributions to double.
In March 2020, the Pensions Regulator announced its plans for a new split approach to DB scheme funding, where schemes would have to opt between two choices.
Pension funds that opt for a prescriptive fast-track funding arrangement would be subject to less regulatory scrutiny, while those opting for a bespoke arrangement would face stricter oversight.
LCP expects that under the fast-track regime, the new rules will be underpinned by the pension scheme’s maturity.
When a scheme matures, the scheme would be expected to fund on a more prudent basis consistent with having low reliance on the scheme’s sponsor, the report stated.
However, only 10 per cent of the pension schemes analysed are currently showing a surplus on this prudent basis, and the combined deficit of the remaining FTSE 100 pension schemes is in excess of £80bn, LCP stated.
According to a report from Aon, FTSE 100 sponsors have done significantly better than those in the FTSE 250, with deficits much lower than the double 2008 levels observed in the latter.
Figures showed that in 2020 the aggregate funding position of the FTSE 250 fell from 97 per cent to 86 per cent. The FTSE 350 also fell from 103 per cent to 95 per cent, increasing net deficits by £75bn.
There have been little signs of recovery since. Aon stated that “many schemes’ funding positions have worsened due to falling yields, but some have been bolstered by strong equity performance, particularly US equities”.
