FTSE350 pensions – not all sectors are created equal
With strict lockdowns imposed in most of the world’s major economies, Covid-19 has wreaked havoc across global financial markets.
In this analysis of the defined benefit (DB) schemes of the FTSE350 companies, we look at the sectoral differences in economic performance over recent months and assess the increase in the overall buyout deficit for these companies.
As we gradually emerge out of this crisis, the impact on pension scheme funding will need to be understood, and employers may need to review the impact this has had on their DB endgame strategy.
Reviewing your endgame strategy
Those responsible for endgame funding strategy should be carefully reviewing the impact of the recent crisis, and where necessary rethinking their journey plan to reflect the changed environment, incorporating the changes to covenant strength and funding position within the overall funding and investment strategy. Here at Barnett Waddingham, we have the expertise to help companies develop their strategic thinking and to understand the challenges that will need to be overcome in the future.
Key Findings
FTSE350 firms with DB pension schemes saw market-end capitalisation fall by 21% from the start of the year to the end of May due to the Covid-19 economic crisis.
Based on current contributions 30% of the consumer staples companies could buyout in five years, increasing to 50% if contributions were trebled.
The consumer discretionary, financial and energy sectors suffered the most from the recent economic crisis, with the latter’s market cap falling by 40%.
Mapping the course for your DB pension scheme
Whilst there is no requirement for schemes to reach buyout funding levels, TPR does expect schemes to have a long-term plan in place.
For the FTSE350 schemes, the buyout deficit currently stands at around £210bn. TPR’s aim for schemes to fund up to a low dependency basis will require a material portion of this being covered over the coming years. Having a clear, coherent plan in place, and understanding all of the available options will be crucial.
As we start to emerge from this crisis, the strength of any recovery is likely to have a significant bearing on the future of DB pension scheme funding strategy. As our research shows, the impact of the crisis has varied dramatically across the different industry sectors. Setting an appropriate journey plan that reflects the new post-crisis world, reflecting the characteristics of the scheme’s particular industry, will be a key objective for companies and trustees.
Our DB Navigator framework can help companies and trustees chart the DB endgame journey.
Please contact Simon Taylor if you would like to discuss any of the above topics in more detail.
Mapping the course of your DB pension scheme
Barnett Waddingham introduces DB Navigator® – our holistic Actuarial, Investment and Administration approach that gives you the knowledge, structure and tools to optimise your strategy for tackling the journey towards your DB endgame.
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FTSE350 pensions – Covid-19 delays the endgame
In our second instalment of FTSE350 research we explore the journey of companies with DB pension obligations,
focusing on the economic turmoil of Covid 19 and the subsequent impact on the path to a schemes endgame.