FTSE 350 pension deficit rockets to £65bn

The total pension deficit at FTSE 350 firms as measured under IAS 19, Employee Benefits, ballooned to £65bn in 2014, up £11bn on the previous year, according to research by pension consultants Barnett Waddingham

The firm’s analysis shows that while £65bn is the highest aggregate defined benefit (DB) deficit recorded for the FTSE 350 index since 2009, the UK’s largest public companies contributed less towards DB pension scheme deficits than at any time since 2009.

Oil and gas firms in the FTSE 350 saw their combined pension deficit more than double to £12.6bn in 2014, compared to £6.2bn in 2013.

Barnett Waddingham’s fifth survey found that in 2014 employers committed over £7bn to clear funding shortfalls, although this is over 40% less than the average figure paid in each year from 2009 to 2012, and nearly 20% less than payments in 2013. 

The amount contributed by employers into defined contribution (DC) pension arrangements increased by nearly one fifth in 2014, which the firm says reflects the new impetus towards DC savings under the auto-enrolment regime as well as employees being moved into DC arrangements as DB schemes continue to close to accrual.

Howevever, despite this move to DC, Barnett Waddingham calculates that for every £1 spent on pension provision for staff in 2014, 32p was directed towards paying down funding shortfalls on legacy DB benefits.

The research found that 80% of companies with material pension shortfalls recognise their DB scheme to be a principal strategic risk for the business. Nick Griggs, head of corporate consulting at Barnett Waddingham, said the outlook for IAS19 deficits remains uncertain, given continued volatility in the key financial markets which drive the assumptions used to value the IAS19 liabilities.

‘Whilst deficit contributions have fallen to the lowest level since our research began in 2009 they still represent a significant cost for what is largely becoming a legacy benefit. The impact on shareholders, who might reasonably expect a 13% increase in their annual dividend were DB schemes not to exist, remains substantial.

The impact on business investment is impossible to quantify but the persistence of these deficits despite the contributions being paid must be having an impact for some in the FTSE 350,’ Griggs said.

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Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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