The overall disclosed FTSE 100 defined benefit (DB) pension scheme deficit widened by £10bn in 2016, new research shows.
This wiped out most of the gains recorded in 2015 and takes the total black hole to within touching distance of £25bn, according to Barnett Waddingham’s calculations.
This has seen blue chip scheme funding levels fall to 91% from 94% in 12 months.
Barnett Waddingham associate Martin Hooper said blue chip deficits have been stable despite the scale of discount rate movements and inflation expectations, but companies will be disappointed not to see an improvement after the contributions they have paid.
There could be further disappointment ahead, especially if interest rates do not start a gradual rise soon or inflation jumps higher than anticipated.
“For valuations carried out in the coming three-yearly cycle, deficits against the funding basis may be significantly worse,” Hooper said. “It is likely many schemes will have to rethink their timetable for achieving full funding and whether the gilts-based funding approach, typically used for scheme funding, remains appropriate.”
Barnett Waddingham’s research also found that investment strategies have changed in the past eight years. The average allocation to equity and property fell to 29% in 2016, down from 46% in 2009. Bonds and other fixed income assets jumped to 54% from 41%, during the same period.
