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FTSE Firms Cut Pension Funds

Thu, 7th Aug 2014

The UK's biggest employers paid out almost £2 billion less into employee pension funds last year, although scheme deficits remained high. According to a report published by Lane Clark & Peacock, FTSE 100 companies contributed a total of £20.2 billion into defined pension benefit funds in 2013.

This is the first time in several years that the cash contributions made by employers has fallen, however as people are living longer the total pension liability for those companies continues to increase.

Of the FTSE 100 companies that were studied, 38 of them had looked at ways to provide increased security for their pension schemes last year, for example securing financial guarantees or charges over assets. Lane Clark and Peackock noted that the growth in such arrangements could partly explain why there had been a reduction in cash contributions.

However, they also noted that the schemes do not hold enough funds to cover their total pension liabilities. The report estimated that the combined IAS19 deficit for FTSE 100 companies was around £37 billion. This is down from £42 billion last year. It is thought that the liabilities could be cut by another £20 billion if FTSE 100 companies switched to a different index when calculating annual pension rises.

It is important to note, however, that employers are not allowed to simply impose the new index on an existing pension scheme. Any changes or de-risking activities must be put forward to trustees and considered on a scheme by scheme basis.

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