FTSE 100 pension schemes climb into surplus for first time since financial crash

The funding position of FTSE 100 pension schemes has moved into surplus for the first time since the financial crash in 2007-08.

Over the course of 2017, FTSE 100 pensions turned around a £31bn deficit to end the year £4bn in surplus.

Lane Clark & Peacock (LCP)’s Accounting for Pensions report explained that the rise in funding levels has been driven by company contributions of £13bn (which is still lower than £17.3bn in 2016) and strong investment growth.

It was also helped by changes in the approach to longevity and discount rate assumptions which largely offset the impact of difficult financial conditions.

But researchers warned that companies were not “out the woods yet,” as future declining market conditions could hit pension schemes hard.

Phil Cuddeford, LCP partner and lead author of the report said:

For one of the first times in years, FTSE 100 pension schemes have clearly swung into surplus when measured on an accounting basis.

Although that’s good news, it is essential that corporate sponsors don’t think they’re out of the woods just yet.

History has proven that such accounting surpluses can quickly be wiped out by deteriorating market and economic conditions.

On trustees’ typical pension scheme funding basis, significant deficits remain, and the persistent gap between dividend payments and scheme contributions is likely to be scrutinised more intensely in the wake of the high-profile collapses of Carillion and BHS.

Nathan Long, a senior pensions analyst at Hargreaves Lansdown, said the improvement in FTSE 100 pension deficits was not surprising.

“A combination of soaring global stock markets, improving Gilt yields and continuing deficit reduction plans have driven up the funding position of FTSE 100 final salary plans,” he explained.

“Fluctuations in this figure should not be cause for great elation, nor huge pessimism if the reverse is true. Sensible management of final salary pension schemes that balances the needs of business and of future pensioners is a delicate and an on-going process.”