LCP said most of the money was intended to counter adverse market movements
According to a report by Lane Clark & Peacock (LCP), UK companies have invested £ 200bn in defined benefit (DB) pension contributions over 15 years to avoid declining pension funding levels.
The consultant’s pension accounting report Reduce risk, build for growth revealed that since 2007, FTSE100 companies have invested billions of pounds in DB pension contributions, with most of the money going to counter adverse market movements.
The report also found that December 2020 was the best year-end position for FTSE 100 retirement balance sheets since 2007, and found that 60% of FTSE 100 companies were in surplus on their posting date and those companies were paying. still £ 5 billion in pension contributions. .
However, LCP warned that potential changes to future pension funding rules could double contributions to the FTSE 100 deficit.
The report also found that the average FTSE 100 CEO has seen his pension contribution cut by a third in just two years “as regulatory pressure hits.”
LCP also warned that companies faced a “huge margin of uncertainty” around the financial impact of changes in Covid-19 mortality, and whether the company suggested that the direct impact on liabilities is “likely marginal, “he said companies should” be cautious about making assumptions about changes in life expectancy. “
The company also warned that having to equalize past transfers to correct uneven GMP “could result in high costs for UK pension schemes.” LCP said that could mean paying £ 300million for underpaid benefits, and potentially an additional £ 100million in legal, administrative and actuarial costs to be implemented.
He added: “This cost is not commensurate, and we believe that it will be up to the administrators, the sponsors and their advisers to come up with a pragmatic answer to meet this last challenge.”
Jonathan Griffith, LCP partner and author of the report, said: “There are many challenges on the horizon for pension plans, particularly with regard to the impact of new regulations on funding, the continued volatility of the pension fund. market and the uncertainty surrounding the impact of Covid-19 on life expectancy.
“That said, after a year like no other and more than a decade of volatility, the pension plans of FTSE 100 companies started 2021 from a position of strength – with improved funding levels and risk. reduced.”
Gordon Watchorn, Head of Business Advisory, added: “Now more than ever, it is difficult for corporate sponsors to ensure that members receive their full benefits while ensuring that the interests of other stakeholders are protected.
“The retirement landscape is changing, and our analysis has shown that there remain significant opportunities for companies able to be proactive and fully commit to their retirement strategy.
The Willis Towers Watson study, released today (May 24), also found that FTSE 350 companies’ DB pension plans were in surplus, overall, almost every day so far this year.
The consultant said this represents “the longest sustained period of book surpluses in over a decade” and revealed on May 18 that the overall pension surplus for the FTSE 350 was estimated at around £ 30bn. – a funding level of 104%.
Senior Director Edd Collins said: “Some companies will emerge from the pandemic in the unusual position of not having their pension plans create a hole in their balance sheet.
“Pension deficits briefly turned into surpluses at the start of the pandemic. When market turmoil causes investors to shy away from corporate bonds, rising interest rates (yields) can reduce pension liabilities recorded in corporate accounts.
“It turned out to be short-lived, but this year saw a more sustained improvement, with liabilities falling more sharply than asset values in the first months of 2021.”