16 October 2018
In the latest half-year update to its landmark Accounting for Pensions (AfP) report, pensions advisory firm LCP has estimated that an imminent court ruling on gender equalisation for pension schemes – potentially requiring the removal of inequalities that arise in benefits between men and women because of unequal Guaranteed Minimum Pensions (GMPs) – could result in a P&L hit to FTSE 100 companies to the tune of £15 billion.This could happen as soon as 2018.
As part of the latest report, respondents to LCP’s survey of corporate decision-makers also noted concerns about potential criminal sanctions to punish directors and limits on dividends paid to shareholders. More specifically:
- The biggest concern for corporate directors when it came to pension schemes was to reduce volatility – often caused by inconsistency between measures of funding, accounting and investment.
- Four-fifths of respondents – many of whom represent schemes in excess of £1 billion – believed that companies should address deficit while profits are high..
- Over half said the biggest concern with having an accounting surplus while still paying contributions was communicating the apparent contradiction between accounting surplus and funding deficit to the relevant stakeholders.
- A fifth of those surveyed stated that commercial consolidator vehicles, which offer companies the opportunity to fully settle their defined benefit pension liabilities, are firmly on their agenda.
- Over 50% are concerned that expected proposals around funding requirements will raise the funding bar to levels which harm corporate sponsors.
In terms of financial health, the latest figures analysed in the report show half of FTSE 100 companies with an IAS19 pension surplus, totalling £50 billion, while the other half have deficits totalling £20 billion. Those with an IAS19 accounting surplus are still planning to pay deficit contributions of around £25 billion. The overall IAS19 surplus of FTSE 100 companies is around £30 billion at the end of September, up from the 2017 year-end total of £4 billion.
Phil Cuddeford, LCP partner and lead author of the report, commented:
“The forthcoming GMP equalisation ruling, could lead to a one-off hit to profits this year of around £15 billion for FTSE 100 companies as well as a larger overall deficit and higher contributions. Although clarity around this issue will be welcome, the broader impact on FTSE 100 companies and many others could be stark.”
“With many important changes in the pensions landscape coming through, including beefing up the powers of the Pensions Regulator, directors are rightly focussing their attention on suitable governance. Corporate decision-makers are also concerned that new funding rules could be harmful to companies.”