FTSE 100 heavyweights jolted by £95bn surge in pension liabilities
THE pension deficits weighing down thousands of Britain’s businesses grew by billions of pounds last year, with black holes widening despite moves to close “gold-plated” defined benefit schemes.
The total cost of pension liabilities among blue-chip FTSE 100 giants grew £95bn to
£681bn in 2016, according to JLT Employee Benefits, with 10 firms – including British Airways owner IAG and defence conglomerate BAE Systems – sitting on deficits that dwarf their stock market value.
These liabilities increase the pressure on companies already fighting to plug the gap by closing their defined benefit schemes, dubbed the “Rolls-royce of pensions”. Final salary schemes, which pay out a proportion of an employee’s final salary for life, were the norm during the Sixties, Seventies and Eighties but have since become unaffordable.
“We expect that defined benefit pension schemes will have all but disappeared from the private sector within the next year or so,” said Charles Cowling, director of JLT Employee Benefits. “Times and markets are still very difficult for many companies.”
But it is not just Britain’s biggest companies struggling with pension deficits. According to a separate study published today, the aggregate pension deficit of FTSE 350 firms grew by £12bn in 2016 to reach £62bn – the equivalent of 70pc of total pre-tax profits for the year, and higher than it was in the immediate aftermath of the financial crisis.
Consultancy Barnett Waddingham, which conducted the report, warned that deficits as a proportion of profits among the FTSE 350 have risen drastically since 2011, when deficits were equal to around 25pc of profits. “Comparing the pension deficit to profits is a simplification, but it helps to put the scale of the challenge into context,” said partner Nick Griggs. “Unless companies are profitable over the long term, they can’t generate enough cash to meet their liabilities.”
Pension deficits have been spiralling for years due to economic changes, increased life expectancy and tough regulations.