The Companies Threatened the Most by Pension Deficits

JLT Employee Benefits has identified “a significant number” of UK pension schemes with deficits greater than their sponsors’ market value.

Sainsbury’s, International Airlines Group, BAE Systems, Royal Sun Alliance, Royal Bank of Scotland and BT: Some of the UK’s biggest listed companies are being dwarfed by their own pension schemes.

The six companies’ pensions have been identified by JLT Employee Benefits as presenting “a material risk to the business” as liabilities exceed the market value of the firms themselves.

Sainsbury’s pension liabilities grew 13% faster than the supermarket giant’s share price in the first quarter of this year, according to JLT.

However, in a results statement covering the 12 months to March 15, 2014, Sainsbury’s said its pension fund deficit had narrowed since its 2009 valuation from £1.2 billion to £592 million, thanks in part to a £600 million property partnership and annual contributions from the company of £49 million.

The weight of these deficits was highlighted by JLT’s finding that 61 of the companies listed on the FTSE 100 index had made “significant deficit funding contributions” in their most recent report and accounts statements. Leading the way was HSBC with a contribution of roughly £500 million into its pension.

JLT added that the total disclosed liabilities for FTSE 100 pension schemes had risen from £515 billion to £557 billion in the last 12 months. The liabilities are concentrated across a very small number of pensions: Charles Cowling, director at JLT Employee Benefits, said the top 10 pensions by liabilities account for a quarter of total private sector pension liabilities. 

This poses challenges for the Pensions Regulator, which in its latest statement on pension scheme funding suggests it is going to pay even closer attention to those pension schemes that represent the biggest risks,” Cowling said.

He cited the example of BT, claiming that funding its £3.9 billion deficit could hurt its attempts to challenge BSkyB’s dominance of sports broadcasting rights in the UK. This is despite the company’s attempts to de-risk its pension, sealing a £16 billion longevity swap deal this month. An updated valuation is expected later this year based on the scheme’s position on June 30, 2014.

Cowling added: “The case of BT also provides evidence that balance sheet volatility caused by pension schemes flows through to share price volatility, with the company’s share price falling 2.4% on news of the potential increase in pension deficits.”

JLT estimated the total deficit across FTSE 100 pension schemes to be £60 billion at the end of March, down by £16 billion compared to March 2013. 

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