The latest defined benefit (DB) pension scheme funding figures make good reading for sponsoring companies.
In October, the aggregate deficit among the retirement schemes of FTSE 350 companies shrank by £10bn to £49bn, according to JLT Employee Benefits (JLT) using the standard accounting measure IAS19.
Over 12 months this black hole more than halved from £112bn, largely thanks to a bull market in equities and lower longevity estimates.
Concerns over inflation exceeding the Bank of England’s 2% target failed to stop the funding level of FTSE 350 DB schemes improve to 94% from 87% 12 months earlier.
FTSE 100 schemes performed slightly better reaching 95% from 87% in the past year, after its deficit narrowed to £39bn from £95bn at the end of October 2016.
There could be more good news on the way. Bank of England governor Mark Carney hinted to MPs that an interest rise could be on the horizon now that inflation has hit 3%. A decision is due on Thursday afternoon (2 Nov).
JLT director Charles Cowling said a rise in interest rates after a 10-year hiatus would reduce the value of pension schemes liabilities.
However, he fired a warning that several challenges remain.
“Pension schemes which are carrying out actuarial valuations in 2017 are likely to show bigger deficits than in 2014, and finance directors, will therefore be facing trustees asking for ‘more please’,” Cowling added.
“But, for now, trustees and finance directors may wish to take advantage of these slightly calmer waters to explore opportunities to offload and settle pension liabilities.”
