The FTSE 100 companies with the best and worst-funded pension schemes

Nine companies listed in the FTSE 100 index have total disclosed pension liabilities greater than their equity market value.

New research has shed light on the pension liabilities of Britain’s biggest businesses, revealing the FTSE 100 listed firms with the best and worst-funded defined benefit (DB) schemes.

Just over half of the FTSE 100 (51 companies) disclosed a pension deficit, while 39 reported a surplus, research from employee benefit provider JLT found. The remaining 10 members, including the Scottish Mortgage investment trust, all reported no DB pension liabilities.

Of the FTSE 100 companies that are battling to meet the ongoing costs of their pension obligations, a “significant number” have pension liabilities that represent a material risk to the business, the report warns.

It adds that nine FTSE 100 firms have pension liabilities greater than their equity market value.

The firms are: BT, BAE Systems, Sainsbury, Centrica, Marks & Spencer, Royal Mail, Royal Bank of Scotland, Marks & Spencer, International Airlines Group. However, it is worth pointing out that the latter four of these names are running a surplus rather than a deficit, thanks to high funding levels.

Funding of pension deficits has also declined over the past year, falling from £10.8 billion to £8.2 billion. But, the report notes, 53 firms have made significant strides to address their pension deficits over the past year.

The report further adds that five FTSE 100 companies paid more in pension contributions than in dividends to shareholders.

But these firms are in the minority, with the report also highlighting how firms could quickly plug their blackholes by temporarily forgoing dividend payments. JLT’s analysis found 37 FTSE 100 companies could have settled their pension deficits in full via a payment of up to one year’s dividend.

It adds that six companies would need a payment of up to two years’ dividends to settle their pension deficits in full, and eight firms would need a payment of more than two years’ dividends in order to wipe the slate clean.

As Money Observer has previously highlighted, firms with big pension deficits are the 'unexploded bomb in investment portfolios'.

Best and worst-funded pensions

According to JLT, the FTSE 100 companies with the worst-funded pension schemes overall were Sky, Antofagasta, Micro Focus International, Mondi and Shire. The table below details the bottom 10, highlighting their funding levels and liabilities. Five of these 10 names, though, have some of the smallest pension liabilities in the FTSE 100, of less than £100 million.

  Rank Assets £m Liabilities £m Surplus/(Deficit) £m Funding Level
Evraz 91 453 663 (210) 68%
InterContinental Hotels 92 113 168 (55) 67%
Fresnillo 93 13 20 (7) 66%
GKN 94 2,901 4,405 (1,504) 66%
Sage Group 95 21 43 (22) 49%
Shire 96 368 786 (418) 47%
Mondi 97 126 327 (200) 39%
Micro Focus International 98 4 28 (24) 16%
Antofagasta plc 99 0 84 (84) 0%
Sky 100 0 34 (34) 0%

 

Meanwhile, the FTSE 100 companies with the best-funded pension schemes overall were Standard Life, Royal Mail, Old Mutual, 3i and Rentokil Initial. Again, the full details and the rest of the top 10 are stated in the table below.

Name Rank Assets £m Liabilities £m Surplus/(Deficit) £m Funding Level
Standard Life 1 4,806 3,193 1,613 151%
Royal Mail Group 2 10,361 7,038 3,323 147%
Old Mutual 3 559 380 179 147%
3i 4 975 782 193 125%
Rentokil Initial 5 1,715 1,415 300 121%
Schroders 6 1,029 866 163 119%
HSBC 7 35,011 29,696 5,316 118%
Pearson 8 3,492 2,973 519 117%
Royal Bank of Scotland 9 49,746 42,378 7,368 117%
Direct Line Insurance 10 102 87 14 116%

 

Overall, the total deficit in FTSE 100 pension schemes at 31 March 2018 is estimated to be £33 billion. This marks an improvement of £2 billion compared to a year ago.

 

Charles Cowling, chief actuary at JLT Employee Benefits, says it has been encouraging to see schemes acknowledging the balance sheet risks presented by unfunded pension obligations and have therefore been taking action to shore up their position.

 

“The companies with the biggest pension funding problems are slowly getting to grips with it,” he adds.

 

Cowling further adds that FTSE 100 pension schemes have also been proactive in taking steps to de-risk their schemes. More than two-thirds (69) of companies in the index now have more than half of their scheme assets in bonds, with many seeking to lock in gains following strong equity market performance in 2017.

 

He says: “Looking ahead, balance sheet resilience could be crucial over the coming months as we approach the Brexit deadline. Corporate sponsors and schemes should think carefully about their risk exposures through a period of heightened political and potential market volatility. With expectations of muted growth into 2019, locking in gains and improving liability matching may help sustain funding positions through times of uncertainty.”

 

Overall, just 23 companies list on the FTSE 100 continue to provide access to DB pension schemes, based on ongoing DB service costs of more than 5 per cent of the total payroll. Final salary or DB schemes have become increasingly unaffordable for employers, for a number of reasons, but one of the biggest drivers has been increasing levels of life expectancy.

 

Nowadays, except in the public sector, the vast majority of those entering the UK workforce will find themselves paying into defined contribution pensions whose fortunes are linked to underlying investment performance. 

 

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment