2018 was a positive year for the funding level of the FTSE 350 defined benefit (DB) pension schemes, with the aggregate deficit falling by £16 billion. This mirrors a wider trend of funding level improvements across the UK, meaning that many companies will be further along the journey to the endgame for their DB scheme than they might have expected.
"The key challenge for DB scheme employers will now be to safely navigate their way to the endgame within risk and cost parameters that are acceptable to the company."
The era of DB pensions is definitely coming to a close as our analysis of the FTSE 350 shows that this is the second year in a row that contributions to defined contribution (DC) schemes have exceeded the cost of DB pension accrual. The key challenge for DB scheme employers will now be to safely navigate their way to the endgame within risk and cost parameters that are acceptable to the company.
Within the FTSE 350, there is a degree of variability in terms of proximity to the endgame. However, our analysis suggests that the endgame is now a realistic medium-term goal for the majority of organisations. Based on the contributions currently being paid, just over half of the FTSE 350 companies could be in a position to buyout their DB scheme in the next decade.
As the endgame becomes a feasible medium-term target, companies should ensure that a strategy for reaching that target is agreed. While setting an appropriate target is crucial, of equal importance is the implementation of a framework for monitoring the scheme’s progress relative to that target. This monitoring framework will provide a clear structure for action to be taken if opportunities or barriers present themselves along the endgame journey.
of FTSE 350 companies could be in a position to buyout within ten years
of companies could buyout using less than 10% of the cash on their balance sheet
the reduction in the time to buyout due to the slowing in mortality improvements over the last five years
"46% of FTSE 350 companies now have a pension scheme funding surplus on an accounting basis, putting many companies in a stronger position to accelerate their buyout if they proactively take action to achieve that goal."