FTSE 100 companies are significantly changing the investment strategies of their pension schemes with eight of
them altering bond allocations by more than 10%.
The average pension scheme allocation to bonds now stands at 56%, up from 50% a year ago and 33% six years ago, said JLT Pension Capital Strategies, a pension consultancy.
There are a “significant” number of FTSE 100 companies where the pension scheme represents a material risk to the business. Eleven FTSE 100 companies have total disclosed pension liabilities greater than their equity market value.
International Airlines Group’s total disclosed liabilities are more than five times their equity market value and BAE Systems, BT and Royal Bank of Scotland have disclosed pension liabilities that are more than double their equity market value.
Only 16 companies disclosed a pension surplus in their most recent annual report and accounts, while 69 companies disclosed pension deficits. JLT estimates that only 12 companies would have disclosed a surplus if their year end had been 30 June 2012
Charles Cowling, managing director at JLT, said: “Many companies are still running mismatched investment strategies and pension liabilities continue to grow. Eurozone worries show few signs of abating and increasing life expectancy continues to pile pressure on schemes and their sponsoring companies.”
As well as continued flows into bond allocations, Cowling expects this year to see a trend towards alternative sources of funding.
“We have already seen companies make use of property partnership deals to help tackle their pension deficits.”
©2012 funds europe
