The health of the FTSE100 DB schemes improved significantly last year, with new figures showing funding levels increased from 110 per cent to 120 per cent over the year. In total the aggregate pensions surplus for this schemes increased from £59bn to £67bn with 90 per cent of FTSE100 companies disclosing an accounting surplus in these DB pension plans.
According to LCP this these UK pension schemes have reached record high funding levels. However its new ‘Accounting for Pensions’ report says that while the high level of prudence within the sector has protected scheme sponsors against possible new significant cash calls, it can have unintended repercussions for corporate balance sheets.
LCP says a huge shift in market conditions over 2022 will also have meant schemes taking a prudent approach will have missed out on a golden opportunity to generate value for sponsors, for members, and for wider stakeholders, with schemes that have taken on more risk benefiting with significant improvements in funding levels on all measures.
The report also highlight how pension schemes have accelerated the move out of equities, with the amount of FTSE100 assets invested in equities falling by £50bn in 2022. This corresponds to the proportion of scheme assets in equities dropping by a third over the year and being less than 10 per cent of total DB pension assets for the first time.
The report also found that increases in corporate bond yields over 2022 has led to a £200bn reduction in UK DB pension liabilities for the FTSE100.
LCP says that its report also found that around three in four FTSE100 CEOs aren’t receiving pension contributions in line with their employees, despite ongoing campaigning from the Investment Association for executive pensions to be more in step with the rest of the workforce.
LCP partner and head of corporate consulting Gordon Watchorn says: “Prudent pension strategies largely worked as intended throughout the LDI crisis and limited risks of future cash calls on pension scheme sponsors. Whilst this has increased the security of DB pensions over recent years, we are now at a point whereby schemes are looking to explore and implement different options to make the most of opportunities.
Jonathan Griffith, LCP partner and author of the report, added: “With improved funding positions and market innovation, pension schemes are no longer seen as a millstone weighing down corporate growth. DB pensions in the UK now stand at a crossroads – they could be consigned to the history books as the rapid increase in insurance de-risking takes hold, or could be seen as an opportunity for growth and improved outcomes delivering enhanced value for all stakeholders and wider UK plc.”
