The UK’s blue chip companies have cut back their defined benefit servicing costs by around 15 per cent over 2017, analysis by JLT Employee Benefits has found, while funding levels continue their painstaking recovery.
FTSE 100 companies ended the year with an aggregate IAS19 funding level of 94 per cent, a 2 percentage point increase on last year’s figure.
Just 19 companies in the index are still providing DB benefits to a significant number of staff. JLT defined significant as where companies have servicing costs of more than 5 per cent of total payroll.
Nine of the 10 companies with the largest servicing costs in the FTSE 100 have made significant cost savings over the year. Royal Dutch Shell, which has the largest servicing costs of any company in the index, saw the least pronounced percentage decrease in costs, from £1.17bn to £1.12bn.
Source: JLT Employee Benefits
Tesco, Royal Mail and Universities UK have all taken steps to close their DB schemes to future accrual over the course of 2017.
The continued scaling back of DB provision reflects funding levels that have only struggled upwards despite large injections of cash, with liabilities mostly matching asset gains.
Source: JLT Employee Benefits
The total disclosed pension liabilities of the FTSE 100 companies rose from £584bn to £705bn over the year, and at March 31 2017 11 companies had disclosed liabilities greater than their equity market value.
For the UK’s entire universe of private sector DB employers, funding levels rose from 89 per cent to 92 per cent over 2017. With assets of £1.6tn and IAS 19 liabilities of £1.8tn, the country now has a deficit of £150bn.
Source: JLT Employee Benefits
Charles Cowling, director at JLT Employee Benefits, said the funding improvement could signal an increase in buyouts with insurers over the period.
“As IAS19 deficits are falling, so too are buyout deficits. At JLT we are seeing strong evidence that the pension buyout market is showing signs of taking off – as competition between insurers is hotting up and prices are getting keener. With more than £12bn of deals transacted in 2017, all the signs point to an even stronger year in 2018, where it is possible that up to £30bn of deals could be transacted,” he said.
