The next six months will see approximately one third of FTSE 100 pension schemes undergo tough negotiations with their sponsors as they attempt to secure higher cash contributions following their actuarial valuation, according to JLT Employee Benefits (“JLT”). JLT says that company directors will be stuck between a rock and a hard place, trying to balance the opposing interests of the two stakeholder groups.
Actuarial valuations typically take place every three years in order to reassess defined benefit (DB) pension deficits and liabilities, using up-to-date economic assumptions. Over the last decade, pension deficits and liabilities have been worsening due to the low interest rate, low bond yield environment, leading trustees to call for greater contributions from the sponsoring company.
Whilst this is part of a long term trend, this year is plagued by additional economic uncertainty brought about by Brexit and the UK general election, with increased market volatility affecting pension funding positions negatively.
Companies with large pension liabilities that are currently or imminently carrying out an actuarial valuation include BAE Systems, BT, GlaxoSmithKline, Lloyds Banking Group, Standard Life and Tesco. Some of these have pension liabilities worth more than the company’s equity value, a position that could make trustees and shareholders equally nervous.
Whilst several FTSE 100 companies could choose to settle their pension deficits in full by withholding dividends, many are reluctant to do so against their relative enthusiasm for declaring dividends for their shareholders.
According to JLT’s research, 44 FTSE 100 companies could settle their pension deficits in full with a payment of up to one year’s dividend, 9 companies would need a payment of up to two years’ dividends to settle their pension deficits in full and 7 companies would need a payment
of more than two years’ dividends in order to settle their pension deficits in full.
The total disclosed pension deficit of the FTSE 100 companies was £26 billion and the total dividends paid by companies with a defined benefit pension scheme in the FTSE 100 was £68.5 billion as at 31 September 2016 (latest data available). This compares to a deficit of £48 billion and dividends of £67 billion one year ago. In total, the amount contributed to FTSE 100 company pension schemes was £13.5 billion, up from £13.4 billion in the previous 12 months.
Charles Cowling, Director, JLT Employee Benefits, comments: “Actuarial valuations carried out this year are likely to show not only much bigger deficits than three years ago but also a massive increase in contributions needed to fund ongoing DB benefits – for those few pension schemes that are still providing DB benefits to employees. This is going to lead to some very tough negotiations on pension scheme contributions. With seven FTSE100 companies already paying more in pension contributions than in dividends to shareholders, this has the potential to hit shareholder returns. Pension scheme members may also suffer as the last few open Private Sector DB pension schemes are closed in the face of impossibly high contribution costs.”
Access the report 'The FTSE100 and their pension disclosures'
Corinne Gladstone, PR Manager, JLT Group | T: +44 (0)20 7895 7705 | M: +44 (0)7799 340658 | E: firstname.lastname@example.org
NOTES TO EDITORS:
About Jardine Lloyd Thompson
Jardine Lloyd Thompson is one of the world’s leading providers of insurance, reinsurance and employee benefits related advice, brokerage and associated services. JLT’s client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.
JLT is quoted on the London Stock Exchange and owns offices in 41 countries with more than 10,600 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.
For further information about JLT, please visit our website www.jlt.com.
About JLT Employee Benefits
JLT Employee Benefits is one of the UK’s leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial, pension and investment consultancy, wealth management, flexible benefits, healthcare, benefit communication and financial education.
JLT Employee Benefits employs over 2,200 professionals and in 2016 had revenues of £160 m in UK & Ireland.
Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc. www.jlteb.com