UK Corporate Pension Funding Levels Nearing 100%

Consultant JLT suggests plans de-risk following monetary policy discussions, regulator warnings.

UK corporate defined benefits plans are almost fully funded, according to a report from pension consultant JLT Employee Benefits.

Funding status for FTSE 100 companies increased to 98% in April, up 4 percentage points from the year prior, the report said. Total deficits improved to £15 billion ($20.4 billion) in April 2018, down 57.1% from April 2017’s £40 billion deficit.

Despite poor GDP growth figures and signs of higher inflation for the UK economy, the recent upswing in FTSE 100 companies’ funded status are the first signs of a fully funded average in almost a decade.

The corporate plans in the FTSE 350 also improved, growing their funding level to 97% while lowering their deficits to £22 billion, a 56% change from the previous year’s £50 billion hole.

Like the FTSE 100 companies, the funded status for UK private sector pension schemes also shot up by 5%, to 95%. The deficit improved by 46.5% for the year, from £146 billion to £78 billion.

Total liabilities were down 4.1% for the year to £1.62 trillion.

Total assets, which were higher than March at £1.54 trillion, were slightly down, dipping 10 basis points for the year.

Although he expressed optimism regarding the vast funding improvements, JLT director Charles Cowling warned that interest rates might be headed up, thanks to the central bank.

“It had been thought quite likely that the Bank of England’s Monetary Policy Committee would raise interest rates at their next meeting on May 10th but the latest weak GDP growth figures may once again have put back the date of the next interest rate rise,” Cowling said in a statement.

Cowling also spoke of the Bank of England’s plan on announcing its future interest rate plans. He said that pension plans should take note of the bank’s discussions as they start to focus on de-risking.

Cowling also noted that the Pensions Regulator’s latest annual funding statement contained “a number of stark warnings” to companies not to favor stockholder dividends at the expense of pension contributions. The regulator, he said, will clamp down on such behavior, , flexing its muscles if it is “unhappy at how pension deficits are being managed.”

He said, that “now may be a good time for companies and trustees to take advantage of recent positive market conditions and reduce risk in their pension schemes.”

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