Solvency II helps FTSE 100 financials repair pension deficits

ftse pricesFunding levels of UK FTSE 100 pension schemes are diverging between financial services companies and other sectors as the Solvency II directive helps the

financial sector to reduce its deficits more quickly.

Research from JLT Employee Benefits reveals that seven of the 10 best-funded FTSE 100 defined benefit (DB) pension schemes are financial services companies.

JLT says this is because insurance companies were forced to plug their pension fund deficits in order to comply with the Solvency II regulation, which imposes stringent capital requirements and risk management standards for the European insurance industry.

Charles Cowling, managing director, JLT Employee Benefits, says: “The Solvency II directive was initially intended to pre-empt the failure of large insurance companies, but it has also had a positive side-effect on the funding levels of insurers’ pension schemes because reducing the pension scheme’s deficit can improve their core capital ratio.”

The top 10 FTSE companies with the best-funded pension schemes include Prudential (119% funded), Standard Life (116% funded) and Schroders (109%) – see table.

The broader situation for FTSE 100 DB schemes is improving, too. The aggregate deficit lessened by £14 billion (€16.5 billion) over the 12 months to June 30 and now stands at £40 billion. This is despite total disclosed pension liabilities rising from £471 billion to £533 billion.

The average pension scheme asset allocation to bonds remains unchanged at 56%. This followed a large increase from 50% the year before. Six years ago, the average bond allocation was only 36%.

Only 66 FTSE 100 companies are still providing more than a handful of current employees with DB benefits. Of these, only 22 companies are still providing DB benefits to a significant number of employees.

Company

Rank

Funding Level

Prudential

1

119%

Standard Life

2

116%

Next

3

112%

Schroders

4

109%

Old Mutual

5

107%

Rolls-Royce

6

106%

Aviva

7

105%

Resolution

8

105%

Experian

9

104%

InterContinental Hotels

10

103%

Table: Top 10 FTSE 100 companies with the best funded pension schemes overall

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