On the go: Impending accounting standards changes could hit FTSE 100 pension schemes by up to £100bn with more than a quarter being hit to the tune of £1bn, according to consultancy LCP.
The actuaries say the effect of changes to International Financial Reporting Interpretations Committee 14 rules and the increased pressure on companies to accelerate contributions could worsen blue chip balance sheets by twice as much as previously predicted.
However, over 2018, FTSE 100 companies have continued to pay around seven times more in shareholder dividends than the £13bn paid to pension schemes.
There is some good news: for the first time in two decades, 2018 saw the aggregate FTSE 100 in accounting surplus throughout the whole year.
The LCP report says: “With large contributions and reducing levels of pensions risk, members’ benefits are now safer and more likely to be paid than ever before.”
The report also flags excessive executive pensions, which continue to be highly controversial. Average FTSE 100 CEO contributions stand at around 25 per cent.
Despite the 2018 surplus, Phil Cuddeford, LCP partner and lead author of the report, warned: “FTSE 100 balance sheets aren’t out of the woods just yet. With the regulator focusing on risk management and longer-term thinking, companies should be proactive in implementing long-term strategies if they are to meet the incoming regulatory requirements in the updated DB funding code, due to be consulted on later this year.”
The report also found that the average equity holding has dipped below 20 per cent for the first time, and that while the impact of guaranteed minimum pensions equalisation is likely to be a lot less than forecasted, some companies have put aside large reserves to deal with the issue. Conversely, reform of the retail price index could impact funding levels by as much as 20 per cent, the report found.
