Despite the UK’s 100 largest companies paying £150 billion (€168 billion) into defined benefit retirement schemes over the last ten years an aggregate surplus of £12 billion in 2007 had become a £17 billion deficit by the end of June 2017.
That was the finding of an annual pensions study by investment consultancy LCP, which said that an ageing population and falling bond yields had driven up the valuation of liabilities.
Nevertheless, the survey found that the combined UK pension deficit of FTSE-100 companies had reduced from £46 billion last year, a reduction which LCP said was attributable to strong returns on assets and a record level of contributions – with Britain’s blue-chip firms paying a total of £17.3 billion to their defined benefit schemes in 2016.
This follows £13.3 billion of contributions paid in 2015, £12.5 billion paid in 2014 and £14.8 billion paid in 2013.
LCP senior partner Bob Scott, the author of the report, said: “The fall in bond yields over the last ten years has led to a sustained rise in liability values, more than 85% since 2007, meaning companies have effectively paid £150 billion to go backwards.
“Companies remain under increasing pressure to pay more into their schemes, and one can only hope that the contributions companies pay in future will have a bigger impact on the pensions deficit than in recent years.”
Graham Vidler, director of external affairs at the Pensions and Lifetime Savings Association said that the report showed that the current defined benefit system “isn’t fit for the future” and that the need to pay for past promises “could divert employer resources away from the investment necessary to ensure their firms’ future”.
“The current system is not fixing itself as it is too fragmented, manages risk inefficiently and has a rigid approach to benefits,” he said.
“Firms are running to stand still as deficit levels remain stubbornly high and members of schemes whose employers are most under pressure have just a 50:50 chance of seeing benefits paid in full.”
©2017 funds europe