FTSE100 pension schemes surpluses set to rise to over £160bn in spite of current market volatility

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Latest analysis of FTSE100 pension positions by LCP’s Pensions Explorer shows that the combined estimated IAS19 surplus (the figure by which surplus or deficits are measured in company accounts) has grown by over £30bn over the three months to 30th September and currently stands at over £160bn.  IAS19 discount rates are currently over 5% pa, the highest month end for over a decade.

Scheme funding levels are benefitting from the higher interest rate environment. While its good news that positions are strong, LCP say there continues to be important questions for pension scheme sponsors to ask.

Over the short-term, focus needs to be on ensuring that pension schemes investments can withstand the current market volatility and they maintain sufficient liquidity to support their hedging levels. 

Looking further ahead, companies should review their long-term term strategy for the pension scheme given we are now in a new economic environment which brings both opportunities and risks.  Many schemes will have got substantially closer to their final destination in a very short space of time and sponsors need to be proactive in considering actions and not miss opportunities to reduce costs or risk.

As rising costs impact business, companies need to ensure there is appropriate security backing members’ benefits but do not end up over-funding and contributing to pension schemes to the detriment of their ability to invest in their business or pay good wages and pension contributions to their current workforce. 

Jonathan Griffith, Partner at LCP, commented “This is an eye-watering figure and highlights that pension schemes are entering new territory and companies need a change in mindset when it comes to pensions.

“However, as the current market volatility shows, whilst the surplus highlights a strong position – it is not the only measure for companies and trustees to pay attention to.  Levels of risk and liquidity must also be controlled.

“Organisations need to engage with their schemes and work out whether now is the time to free up cash to invest in their business and improve resilience in the face of the economic headwinds in the shape of market volatility, rising inflation, and hikes in interest rates.”