Accounting for pension costs by FTSE100 companies

Barnett Waddingham’s annual survey of FTSE100 pension disclosures shows deficit levels increased during 2016, reversing most of the gains made in 2015. Despite significant contributions by scheme sponsors the overall deficit rose by more than £10bn to almost £25bn.

The survey also highlighted a change in asset allocation in recent years. The average allocation to growth assets, equity and property, has steadily decreased from 46% in 2009 to 29% in 2016, while bonds and fixed income assets have increased from 41% in 2009 to around 54% in 2016.

SURVEY HIGHLIGHTS

average decrease in discount rate at the end of 2016

0.0%

increase in average RPi inflation assumptions adopted by the companies in our survey

of schemes assets are allocated to growth assets, down from 31% in 2015

was the average IAS19 funding level for the companies in our survey, down from 94% in 2015

“On the face of it, the deficits disclosed by the FTSE100 remained remarkably stable, given the scale of movements in discount rates and inflation expectations. However, with the level of contributions made towards the pension deficits over the year, companies would have been hoping for an improvement.

Looking ahead, the market is currently pricing in a gradual rise in interest rates. If these do not materialise it will significantly limit any progress made towards improving the FTSE100 Pensions deficit. The market has already priced in higher inflation expectations following the Brexit vote and the US election. However, further uncertainty and any knock-on effect on the sterling, could raise inflation expectations and push up valuations of liabilities."

Martin Hooper, Associate - Barnett Waddingham

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