Latest analysis of FTSE100 pension positions by LCP’s Pensions Explorer shows that the combined IAS19 surplus has continued to grow at pace over the three months to 31 March 2022.  The surplus now stands at around £100bn – the first time this threshold has been crossed. 

This landmark comes despite the many challenges facing UK companies including rising inflation and continued Covid uncertainty.

The cost of inflation is hitting pension schemes and corporate balance sheets.  Recent RPI and CPI increase announcements have led to higher-than-expected pension increases granted to scheme members increasing costs.  This has been coupled with an increase in the longer-term expected level of future inflation meaning companies and schemes are expected to hold more assets to cover future benefit payments.  Combined, this has increased FTSE100 pension liabilities by around £50bn.  An increase in the value of pension assets will have offset some of this cost, and in several cases actually led to a “profit” as the full inflationary impact has not been felt due to a cap on annual pension increases.

Jonathan Griffith, Partner at LCP, said: “The last two years have been somewhat of a rollercoaster, with the initial economic ups and downs of the pandemic followed by a relative period of calm. The improvement in position since the turn of the year is very welcome, but it remains to be seen whether the ride is still climbing or there is a drop just round the corner.

“We are seeing inflation reaching record highs on consecutive months and schemes may need to buckle up for a prolonged ride that could have a long-term impact on scheme liabilities.

“Scheme sponsors will need to hold on tight and work closely with the trustees to make sure that their long-term funding targets stay on track, but attention has inevitably started to turn to if and how sponsors can make use of the substantial surplus that has built up.

LCP’s annual Accounting for Pensions report that analyses the disclosures for all FTSE100 companies and sets out the key trends and issues will be published in May.