Key Insights

1. FTSE 100 schemes using long term "low reliance" assumptions

Our research suggests that at the end of 2021 for around half of the FTSE 100 (34 out of 68 with significant UK DB liabilities), schemes were approximately fully funded (or better) using long term low-reliance assumptions consistent with those we expect could emerge under new funding regulations (and using a Gilts + 0.5% discount rate).

FTSE 100 schemes using long term "low reliance" assumptions

2. Potential impact of the pandemic on FTSE100 schemes

For FTSE100 schemes that are in deficit using long term low-reliance assumptions (using a gilts + 0.5% discount rate), our research suggests that if allowance is made for the potential effects of the pandemic on life expectancy, deficits could fall by c.£5bn. This might correspond to around a £1bn p.a. reduction in contributions if it were possible to feed directly into recovery plans, for example by making efficient use of contingent asset or contribution approaches.

Potential impact of the pandemic on FTSE100 schemes

3. Pension Scheme Priorities

Research accompanying our recent Chart Your Own Course publication, found that for around half of schemes their key priority for the upcoming year is either refining their long term strategy or beginning to actively investigate insurance solutions. Updating longevity assumptions to reflect the pandemic has so far not been a key action for most schemes. We believe sponsors need to proactively raise this area to incorporate lower life expectancy assumptions.

Key pension scheme priority for year ahead

4. Long term targets

LCP research suggests that whilst most schemes do now have a formal long term target, for the largest schemes (above £1 billion in assets) in assets around 50% are currently adopting a run off approach. Smaller schemes are more likely to be currently targeting an insurance buy-out approach. Around one in six schemes (of all sizes) are yet to formalise their long term strategies.

Current long term targets

5. Contingent Funding

Our research suggests over two thirds of sponsors have put in place some form of contingent security for their schemes. This appears to be broadly equally common for large as well as smaller schemes. Given the wide ranging use of contingent assets in general, we now think it will be natural for these structures to increasingly be used by sponsors to efficiently manage longevity uncertainty.