The celebrated pensions scheme funding recovery has proved to be short-lived – with last week’s stock market jitters plunging firms back into deficit.
On 8 August actuary firm Lane Clark and Peacock’s annual report showed the FTSE 100 firms had an aggregate funding surplus for the first time in five years. Investment partner Ken Willis went to suggest final salary pension schemes could make a comeback.
But on 17 August the firm revealed that the pension schemes are already back into deficit – £15bn across the top 100 publicly listed companies.
The heavy swing was due to the way companies got themselves out of the funding ‘black hole’ in the first place – by investing in equities.
The average FTSE 100 firm has 57% of its pension scheme funded by equities, with one scheme 81% funded in this way.
As the stock market rose over the past five years, the balance sheets of pension schemes got healthier. When it fell dramatically in the past few days, companies found themselves looking at large deficits again.
Willis said: “It is crucial that the companies which sponsor pension funds understand the investment risks that they are running, and consider what steps they could take to help pension scheme trustees reduce or manage those risks.”