Some of the biggest businesses in the United Kingdom are set for a summer of financial discontent, should they be forced to significantly increase pension contributions over the coming months as deficits accelerate.
It is estimated that more than 30% of the FTSE 100 – which includes companies like Tesco and Lloyds – could face the prospect of having to boost pension contributions over the summer, as JLT Employee Benefits warns of deficits considerably higher than those at the time of the previous triennial health check on so-called defined benefit schemes.
JLT is one of the UK’s leading pension and employee benefit consultancies and carries out regular studies on the overall health of the Britishsystem.
Additional companies with a potentially costly summer ahead include Standard Life, BAE Systems, GlaxoSmithKline and many more besides.
JLT comments that while the past decade has brought about a flurry of deficit increases on the back of low interest rates, additional issues like political uncertainty, quantities easing and the devastating collapse of the GBP in the wake of the Brexit vote have all had a huge impact on both deficits and pension contribution requirements for employers.
International Airlines Group, the parent company that owns British Airways, now has total equity market value lower than its pension liabilities.
Speaking on behalf of JLT, director Charles Cowling stated that many businesses will not be able to avoid the prospect of uneasy and challenging conversations/negotiations over the coming months.
“Those negotiations will be starting to happen now and this tension between dividends and cash into pension schemes is going to be a hot topic in debate at boardrooms in the next few months,” he said.
“The difference in the last five to 10 years is that before you were discussing surpluses. “These days it’s deficits, which keep getting bigger.”
It is now estimated that FTSE 100 pension schemes currently face a deficit that totals around £105 billion. In addition, the last official collection of data found that along with International Airlines Group, no less than eight FTSE 100 companies now have pension deficits bigger than their total equity market value.
With such uncertainty, pension savers are being advised to seek professional advice to know both where they stand and which options are available to them. The recent collapse of BHS underlined the importance of taking nothing for granted, when it comes to saving for.
If you’re a deferred member of a final salary pension scheme and worried about whether it’s affected by these deficits, or you simply want to fully understand your pension savings options in more detail, please contact us at Haven IFA for a free review.