On the go: FTSE 100 schemes have entered “uncharted territory” after reaching a record combined surplus of £130bn, according to LCP.
The aggregate surplus is equivalent to an IAS19 funding level of around 135 per cent, the consultancy said.
This represents a marked rise in the surplus since the end of 2021, which itself had increased sixfold over the past year. Increases in corporate bond yields last year cut IAS19 liabilities by a tenth. The surplus stood at £59bn at the close of December.
Yield increases have lowered liabilities by another 20 per cent this year, LCP added.
The consultancy observed that the majority of companies have not yet incorporated the long-term impact of the coronavirus pandemic into their life expectancy forecasts. The consultancy suggested a reduction in pension liabilities for the FTSE100 of up to 2 per cent, or £10bn, may be appropriate.
On June 30, the Institute and Faculty of Actuaries said that insurers only expect the pandemic’s impact on future mortality improvements to affect life expectancy by less than 1 per cent.
The aggregate surplus broke the £100bn barrier for the first time in May 2022 and is expected to grow further this year, LCP said.
Less than five FTSE100 companies are expected to have an IAS19 deficit by May 2022, it said. For the first time in two decades, more companies are now concerning themselves with managing surpluses.
“It is entirely understandable that the government and regulators want to make sure there is enough money in company pension schemes to meet the pension promises which have been made,” LCP partner Jonathan Griffith said.
“But after years of shortfalls, we are now starting to see companies with significant pension scheme surpluses reported in their annual accounts.
“It is time to review the funding agreements to reflect the new economic environment, so that companies continue to ensure there is appropriate security backing members’ benefits, but do not end up over-funding and contributing to pension schemes to the detriment of their ability to invest in their business, or pay good wages and pension contributions to their current workforce."
