FTSE 100 pensions ‘in best position’ pre-Covid

The pension schemes of FTSE 100 companies were in their best position for 20 years at the start of the Covid-19 crisis, but progress on reducing the gap between senior executives’ packages and those of the company’s workforce has been slow, according to consultancy LCP

Its analysis of the 2019 annual accounts of each of the FTSE 100 companies found 60% reported an accounting surplus in their pension scheme as measured on an IAS19 basis.

LCP estimates that by the end of March 2020 and the start of the Covid-19 crisis, 70% were in surplus and combined were in their best position for 20 years. However, just a month later, at the end of April 2020, the proportion of FTSE 100 schemes with an accounting surplus had fallen back to below 60%.

In some cases, accounting deficits fluctuated wildly after the start of the crisis. In just eight days from 10 March to 18 March, pension scheme liabilities on an accounting basis dropped by £150bn due to a dramatic increase in discount rates, while most asset classes saw large drops.

Jonathan Griffith, partner at LCP and co-author of the report, said: ‘Before the economic earthquake of Covid-19, a large number of FTSE 100 pension schemes were in a relatively healthy position finally reaching calmer shores following the financial crisis of 2008, with most reporting a surplus in their company accounts.

‘The pandemic has thrown all this up in the air as discount rates and asset values are impacted by the market volatility.’

However, LCP research suggests that whilst the crisis has created serious turbulence for many of the companies in the FTSE 100, the impact on their pension deficits would have been more muted. This is because their combined pension asset holdings are 60% in bonds and only 20% in equities, one of the asset classes that has been hardest hit by the virus.

Its report also shows that between 2018 and 2019, the average pension contribution for FTSE100 CEOs fell from 25% to 20% of basic salary following new ‘name and shame’ rules from the Investment Association. The ratio of CEO to average staff contributions fell from four times to three times.

Helen Draper, partner at LCP and co-author of the report, said: ‘FTSE 100 companies have also been responding to pressure around the pension packages of top executives.

‘The overall generosity of CEO pension packages has been reduced and the gap between CEO pensions and those of typical workers has also come down.

‘But there is still a long way to go before the pension provision for those at the top and bottom of most FTSE 100 companies comes into alignment.’

LCP’s Accounting for Pensions (AfP) report

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