Cracks in FTSE 250 pension schemes

CracksA “significant” number of the FTSE 250 pension schemes struggle with deficits and funding gaps, according to research.

JLT Pension Capital Strategies, a consultancy, said many pension schemes were “in a precarious position” with a total deficit at £11 billion (€13.8 billion) - a deterioration of £5 billion from last year.

Yet the consultancy also highlighted that there continues to be a significant funding of pension deficits. Last year saw total deficit funding of £1.5 billion, up from £1.2 billion the previous year.

Construction firm Taylor Wimpey and telecoms business Cable & Wireless lead the way, according to the research, with net deficit contributions of £122 million and £101 million respectively. Another 46 of the FTSE 250 companies also reported significant deficit funding contributions during the year.

Overall, the decline in defined benefit (DB) provision continues. Just 75 of the FTSE 250 companies still provide pensions to more than a handful of current employees through this structure. Of these, only 15 companies are still offering DB defined benefit provisions to a significant number of employees.

“Changes in economic conditions and increasing life expectancy have contributed to the spiraling growth in pension liabilities,” said Charles Cowling, managing director. “Crucially, there are a significant number of FTSE 250 companies where the pension scheme represents a material risk to the business.”

Cowling said more and more trustee boards were taking a greater risk-averse stance, protecting schemes from over-exposure to equities by buying bonds.

“However this de-risking is coming at a significant cost, as evidenced by the fact that pension deficit funding is significantly up from the last quarter,” he said. “Exposure to equities will continue to fall in favour of fixed income as schemes seek to de-risk.”

Cowling also warned that some FTSE 250 schemes could be viewed as “considerably jeopardised by the extent of their liabilities”.

©2012 funds europe