We’re about to embark on the collection and analysis of data for the 2019 version of our FTSE350 DB report (2018 version here), so we thought we would look ahead to what the results might show.
The aggregate deficit of the FTSE350 fell by £40bn in 2017 to around £35bn at 31 December 2017. The first half of 2018 saw the position continue to improve, and for much of the period from mid-May to the end of September we saw single digit deficits, and even the odd surplus. However, volatile markets towards the end to the year mean that, all else being equal, the position at 31 December 2018 is likely to be only slightly improved compared to the start of the year.
That’s all assuming, though, that nothing apart from market conditions will have changed. So what might have changed?
Well for a start, last year we saw evidence of many companies changing their discount rate models. If more companies follow suit, we could see a significant reduction in liabilities at 31 December 2018.
The last two or three years have also seen liabilities reducing as companies have adopted the updated mortality projections, reflecting a slowdown in the rate of mortality improvements. The CMI 2017 projections (released in 2018) and the recently released 2018 projections have continued that trend, so this may be another factor reducing liabilities at 31 December 2018.
On the flip side, the big news in the pensions world in 2018 – GMP equalisation – will lead to an increase in liabilities, although the extent remains to be seen. A general rule of thumb used before any detailed calculations were done was that liabilities might increase by between 1% and 3%, although initial calculations for many schemes are coming out below 1%. It will also be interesting to see how many companies have to allow for the impact of this through their P&L as a potentially significant hit compared to their usual pension costs.