Companies can 'breathe a sigh of relief' as FTSE 100 pension surplus returns to pre-Covid levels

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Building on their recent Accounting for Pensions report, new analysis by LCP shows that FTSE100 IAS19 pension positions have now fully recovered from the Covid fallout with the combined surplus now standing at over £50bn.  The current position is over £10bn better than when the pandemic and lockdown first hit back in March 2020. 

The surplus for FTSE100 companies has soared over the first half of the year from £10bn at 31 December 2020 to £52bn at 30 June 2021, as revealed by LCP’s newly launched FTSE100 Pensions Explorer. 

According to LCP, the two key reasons for this improvement in the position are: 

  • Good asset returns since the turn of the year across most growth asset classes
  • An increase in accounting discount rates from the record lows observed at the 2020 year-end

There are now only 11 FTSE100 companies that are estimated to have an accounting deficit as at 30th June 2021.  

Commenting, Jonathan Griffith, Partner at LCP, said: “With all the market volatility and uncertainty of the last year, FTSE100 companies can now breathe a sigh of relief that pension positions have soared back to pre-pandemic March 2020 levels. As a result, many companies may look to build on this position, seize the opportunity, and consider proactively de-risking their pension schemes.   

“Whilst this is clearly good news, companies can’t afford to become complacent and let pensions fall down the agenda.  Trouble may lie ahead in the shape of big increases to pension contributions as part of the next round of scheme funding valuations. In addition, potential changes to future pensions funding rules that are on the horizon could also potentially cause FTSE100 deficit contributions to double.” 

“Companies need to be prepared and we are seeing more and more turn to contingent funding solutions to help tread the balance between providing important protection for schemes and their members, whilst also protecting companies from ‘overfunding’ and freeing up resources to invest. This will continue to be a trend throughout the year and beyond.”