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UK pension deficits at record year-end level

03 January 2017

Defined benefit pension fund deficits have only partially recovered from record intra-year position despite equity market surge

Read more: DB JLT Charles Cowling defined benefit

The combined deficit of UK private sector defined benefit (DB) pensions schemes was £434bn ($533bn) at the end of 2016, compared to £233bn year-on-year, according to research by JLT Employee Benefits.

While total private sector DB pension scheme assets increased from £1,225bn to £1,448bn during 2016, liabilities jumped by a larger amount from £1,458bn to £1,882bn.

FTSE 100 companies’ DB assets increased from £536bn to £596bn while estimated liabilities rose from £606bn to £765bn. The deficit of increased from £70bn to £169bn.

The picture was similar for the broader-based FTSE 350. FTSE 350 companies’ assets increased from £605bn to £675bn during 2016, with liabilities increasing from £686bn to £866bn. The deficit increased from £81bn to £191bn.

Charles Cowling, director at JLT Employee Benefits said: "This last month we have seen a slight deterioration in deficits but they are still below the record heights of over £500bn recorded at the end of August, as markets rallied from Brexit and the US election shocks.

"However, pension scheme deficits are still significantly larger than the levels at the start of the year and there appears to be no relief in sight for companies with large pension schemes. Indeed, these figures represent a record year end deficit position for companies and their pension schemes."

Cowling stressed that companies’ accounts will show a "market deterioration" in their year-end pension numbers. "There will be instances where the pension scheme will represent a serious threat to the company’s balance sheet and, in some cases, the company’s ability to pay dividends."

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