Pension deficits - "the unexploded bomb"

[Tommy Tainant]

I got this in a newsletter today. Its an enormous amount of money. I think our companies law is far too lenient in this regard. Is it a similar story over there ?


New research has found the pension liabilities of Britain's biggest businesses have slightly improved over a 12-month period to the end of June 2018.

According to employee benefit provider JLT, the total disclosed pension liabilities of FTSE 100 companies has fallen by £27 billion to £683 billion over the period. It notes that this "prompted many sponsors to lock in gains with a move into bonds", which proved to be a case of good timing given the market turmoil that took place in the final quarter of 2018.

It adds that eight FTSE 100 companies, including Severn Trent (LSE:SVT), Legal & General (LSE:LGEN) and Ferguson (LSE:FERG), increased their scheme allocation to bonds by more than 10% from the end of June 2017 to the end of June 2018.

But, Charles Cowling, chief actuary at JLT, points out the good progress made could be hampered by a no-deal Brexit, which would likely lead to a stock market sell-off.

He says: "Limiting volatility in pension schemes may prove crucial to UK companies over the next few months, a period which could bring untold challenges to even the largest, most resilient businesses.

"While constituents with a significant proportion of revenues derived overseas will be relatively sheltered from the potentially negative currency implications of a no-deal Brexit, domestically focused companies have a tough road ahead of them."

In the coming weeks and months, he adds that it will be important for trustees and their sponsors to "batten down the hatches and ensure their scheme is positioned appropriately".

"For some, this may constitute a decision to take some risk off the table, while for others it may be case of building effective hedging strategies. Either way, in order to protect the good progress of 2018, it is crucial that schemes remain alert to the situation as it evolves," says Cowling.

Despite the reduction in pension deficits for the FTSE 100 index as a whole, JLT points out that pension schemes continue to represent a material risk to several of the UK's largest companies. A total of 18 FTSE 100 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell (LSE:RDSB) at £74 billion.

At the other end of the scale 22 companies have disclosed pension liabilities of under £100 million; of those, 13 have no defined benefit liabilities.

As Money Observer has previously highlighted, the size of a company's pension scheme deficit can affect the firm's health, because this debt has to be serviced, and that can undermine the company's ability to grow its dividends or fund investment in future growth.

This has led some investors to argue that firms with big pension deficits are the "unexploded bomb in investment portfolios".

 

[80zephyr]

Companies gradually become more socialistic, and rot from the inside. When GM went bankrupt, they had become a pension and health care company that sold cars on the side.

Mark

 

[gipper]

Companies gradually become more socialistic, and rot from the inside. When GM went bankrupt, they had become a pension and health care company that sold cars on the side.

Mark

...and then Obama screwed the GM bond holders, in one of the most unconstitutional and tyrannical actions ever taken by our criminal government. Yet, few know of it.

 

[Pavel Svinchnik]

Companies gradually become more socialistic, and rot from the inside. When GM went bankrupt, they had become a pension and health care company that sold cars on the side.

Mark

...and then Obama screwed the GM bond holders, in one of the most unconstitutional and tyrannical actions ever taken by our criminal government. Yet, few know of it.

I know of it because I lost a couple thousand dollars on that deal.

 

[Pavel Svinchnik]

I got this in a newsletter today. Its an enormous amount of money. I think our companies law is far too lenient in this regard. Is it a similar story over there ?


New research has found the pension liabilities of Britain's biggest businesses have slightly improved over a 12-month period to the end of June 2018.

According to employee benefit provider JLT, the total disclosed pension liabilities of FTSE 100 companies has fallen by £27 billion to £683 billion over the period. It notes that this "prompted many sponsors to lock in gains with a move into bonds", which proved to be a case of good timing given the market turmoil that took place in the final quarter of 2018.

It adds that eight FTSE 100 companies, including Severn Trent (LSE:SVT), Legal & General (LSE:LGEN) and Ferguson (LSE:FERG), increased their scheme allocation to bonds by more than 10% from the end of June 2017 to the end of June 2018.

But, Charles Cowling, chief actuary at JLT, points out the good progress made could be hampered by a no-deal Brexit, which would likely lead to a stock market sell-off.

He says: "Limiting volatility in pension schemes may prove crucial to UK companies over the next few months, a period which could bring untold challenges to even the largest, most resilient businesses.

"While constituents with a significant proportion of revenues derived overseas will be relatively sheltered from the potentially negative currency implications of a no-deal Brexit, domestically focused companies have a tough road ahead of them."

In the coming weeks and months, he adds that it will be important for trustees and their sponsors to "batten down the hatches and ensure their scheme is positioned appropriately".

"For some, this may constitute a decision to take some risk off the table, while for others it may be case of building effective hedging strategies. Either way, in order to protect the good progress of 2018, it is crucial that schemes remain alert to the situation as it evolves," says Cowling.

Despite the reduction in pension deficits for the FTSE 100 index as a whole, JLT points out that pension schemes continue to represent a material risk to several of the UK's largest companies. A total of 18 FTSE 100 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell (LSE:RDSB) at £74 billion.

At the other end of the scale 22 companies have disclosed pension liabilities of under £100 million; of those, 13 have no defined benefit liabilities.

As Money Observer has previously highlighted, the size of a company's pension scheme deficit can affect the firm's health, because this debt has to be serviced, and that can undermine the company's ability to grow its dividends or fund investment in future growth.

This has led some investors to argue that firms with big pension deficits are the "unexploded bomb in investment portfolios".

In the early 1970's, in the U.S.A., I worked at an actuary office that serviced small company pension plans. There were definite rules on how the pensions were to be funded to qualify as legitimate pension plans. After I moved on to another career, they changed the law regarding funding of private pension plans; apparently the law didn't apply to public pensions from all the horror stories of underfunding that I've been hearing. Are there any actuaries out there who know the facts?

 

[Tommy Tainant]

I got this in a newsletter today. Its an enormous amount of money. I think our companies law is far too lenient in this regard. Is it a similar story over there ?


New research has found the pension liabilities of Britain's biggest businesses have slightly improved over a 12-month period to the end of June 2018.

According to employee benefit provider JLT, the total disclosed pension liabilities of FTSE 100 companies has fallen by £27 billion to £683 billion over the period. It notes that this "prompted many sponsors to lock in gains with a move into bonds", which proved to be a case of good timing given the market turmoil that took place in the final quarter of 2018.

It adds that eight FTSE 100 companies, including Severn Trent (LSE:SVT), Legal & General (LSE:LGEN) and Ferguson (LSE:FERG), increased their scheme allocation to bonds by more than 10% from the end of June 2017 to the end of June 2018.

But, Charles Cowling, chief actuary at JLT, points out the good progress made could be hampered by a no-deal Brexit, which would likely lead to a stock market sell-off.

He says: "Limiting volatility in pension schemes may prove crucial to UK companies over the next few months, a period which could bring untold challenges to even the largest, most resilient businesses.

"While constituents with a significant proportion of revenues derived overseas will be relatively sheltered from the potentially negative currency implications of a no-deal Brexit, domestically focused companies have a tough road ahead of them."

In the coming weeks and months, he adds that it will be important for trustees and their sponsors to "batten down the hatches and ensure their scheme is positioned appropriately".

"For some, this may constitute a decision to take some risk off the table, while for others it may be case of building effective hedging strategies. Either way, in order to protect the good progress of 2018, it is crucial that schemes remain alert to the situation as it evolves," says Cowling.

Despite the reduction in pension deficits for the FTSE 100 index as a whole, JLT points out that pension schemes continue to represent a material risk to several of the UK's largest companies. A total of 18 FTSE 100 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell (LSE:RDSB) at £74 billion.

At the other end of the scale 22 companies have disclosed pension liabilities of under £100 million; of those, 13 have no defined benefit liabilities.

As Money Observer has previously highlighted, the size of a company's pension scheme deficit can affect the firm's health, because this debt has to be serviced, and that can undermine the company's ability to grow its dividends or fund investment in future growth.

This has led some investors to argue that firms with big pension deficits are the "unexploded bomb in investment portfolios".

In the early 1970's, in the U.S.A., I worked at an actuary office that serviced small company pension plans. There were definite rules on how the pensions were to be funded to qualify as legitimate pension plans. After I moved on to another career, they changed the law regarding funding of private pension plans; apparently the law didn't apply to public pensions from all the horror stories of underfunding that I've been hearing. Are there any actuaries out there who know the facts?

In the UK most listed companies have shifted their schemes. They used to guarantee your pension but now it is a pension fund and the risk has shifted from the employer to the individual.

My last company pension scheme saw me pay 5% of my salary into my pension fund and this was matched by my employer. It was ok but not as good as a final salary scheme.

 

[Pavel Svinchnik]

I got this in a newsletter today. Its an enormous amount of money. I think our companies law is far too lenient in this regard. Is it a similar story over there ?


New research has found the pension liabilities of Britain's biggest businesses have slightly improved over a 12-month period to the end of June 2018.

According to employee benefit provider JLT, the total disclosed pension liabilities of FTSE 100 companies has fallen by £27 billion to £683 billion over the period. It notes that this "prompted many sponsors to lock in gains with a move into bonds", which proved to be a case of good timing given the market turmoil that took place in the final quarter of 2018.

It adds that eight FTSE 100 companies, including Severn Trent (LSE:SVT), Legal & General (LSE:LGEN) and Ferguson (LSE:FERG), increased their scheme allocation to bonds by more than 10% from the end of June 2017 to the end of June 2018.

But, Charles Cowling, chief actuary at JLT, points out the good progress made could be hampered by a no-deal Brexit, which would likely lead to a stock market sell-off.

He says: "Limiting volatility in pension schemes may prove crucial to UK companies over the next few months, a period which could bring untold challenges to even the largest, most resilient businesses.

"While constituents with a significant proportion of revenues derived overseas will be relatively sheltered from the potentially negative currency implications of a no-deal Brexit, domestically focused companies have a tough road ahead of them."

In the coming weeks and months, he adds that it will be important for trustees and their sponsors to "batten down the hatches and ensure their scheme is positioned appropriately".

"For some, this may constitute a decision to take some risk off the table, while for others it may be case of building effective hedging strategies. Either way, in order to protect the good progress of 2018, it is crucial that schemes remain alert to the situation as it evolves," says Cowling.

Despite the reduction in pension deficits for the FTSE 100 index as a whole, JLT points out that pension schemes continue to represent a material risk to several of the UK's largest companies. A total of 18 FTSE 100 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell (LSE:RDSB) at £74 billion.

At the other end of the scale 22 companies have disclosed pension liabilities of under £100 million; of those, 13 have no defined benefit liabilities.

As Money Observer has previously highlighted, the size of a company's pension scheme deficit can affect the firm's health, because this debt has to be serviced, and that can undermine the company's ability to grow its dividends or fund investment in future growth.

This has led some investors to argue that firms with big pension deficits are the "unexploded bomb in investment portfolios".

In the early 1970's, in the U.S.A., I worked at an actuary office that serviced small company pension plans. There were definite rules on how the pensions were to be funded to qualify as legitimate pension plans. After I moved on to another career, they changed the law regarding funding of private pension plans; apparently the law didn't apply to public pensions from all the horror stories of underfunding that I've been hearing. Are there any actuaries out there who know the facts?

In the UK most listed companies have shifted their schemes. They used to guarantee your pension but now it is a pension fund and the risk has shifted from the employer to the individual.

My last company pension scheme saw me pay 5% of my salary into my pension fund and this was matched by my employer. It was ok but not as good as a final salary scheme.

I worked at my last employer for 22 years, which qualified me for a decent pension, what we call a "defined benefit" plan, i.e., one which pays you a certain amount based on your final salary and years of service. They ended that a few years before I retired; people hired after a certain date were no longer included in the defined benefit plan. Fortunately for me, I was already vested so I get my money on the first of every month.

They also had a pension fund that I contributed a good part of my salary into over the years. Contributions were made with pre-tax income. In the U.S.A., those are generally termed 401k plans, but since I worked for a non-profit organization, mine was called a 403b plan. Same thing; I now have a lump of money that I have to withdraw a certain amount from each year based on my age and the withdrawals are taxable income.

 

[Tommy Tainant]

I got this in a newsletter today. Its an enormous amount of money. I think our companies law is far too lenient in this regard. Is it a similar story over there ?


New research has found the pension liabilities of Britain's biggest businesses have slightly improved over a 12-month period to the end of June 2018.

According to employee benefit provider JLT, the total disclosed pension liabilities of FTSE 100 companies has fallen by £27 billion to £683 billion over the period. It notes that this "prompted many sponsors to lock in gains with a move into bonds", which proved to be a case of good timing given the market turmoil that took place in the final quarter of 2018.

It adds that eight FTSE 100 companies, including Severn Trent (LSE:SVT), Legal & General (LSE:LGEN) and Ferguson (LSE:FERG), increased their scheme allocation to bonds by more than 10% from the end of June 2017 to the end of June 2018.

But, Charles Cowling, chief actuary at JLT, points out the good progress made could be hampered by a no-deal Brexit, which would likely lead to a stock market sell-off.

He says: "Limiting volatility in pension schemes may prove crucial to UK companies over the next few months, a period which could bring untold challenges to even the largest, most resilient businesses.

"While constituents with a significant proportion of revenues derived overseas will be relatively sheltered from the potentially negative currency implications of a no-deal Brexit, domestically focused companies have a tough road ahead of them."

In the coming weeks and months, he adds that it will be important for trustees and their sponsors to "batten down the hatches and ensure their scheme is positioned appropriately".

"For some, this may constitute a decision to take some risk off the table, while for others it may be case of building effective hedging strategies. Either way, in order to protect the good progress of 2018, it is crucial that schemes remain alert to the situation as it evolves," says Cowling.

Despite the reduction in pension deficits for the FTSE 100 index as a whole, JLT points out that pension schemes continue to represent a material risk to several of the UK's largest companies. A total of 18 FTSE 100 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell (LSE:RDSB) at £74 billion.

At the other end of the scale 22 companies have disclosed pension liabilities of under £100 million; of those, 13 have no defined benefit liabilities.

As Money Observer has previously highlighted, the size of a company's pension scheme deficit can affect the firm's health, because this debt has to be serviced, and that can undermine the company's ability to grow its dividends or fund investment in future growth.

This has led some investors to argue that firms with big pension deficits are the "unexploded bomb in investment portfolios".

In the early 1970's, in the U.S.A., I worked at an actuary office that serviced small company pension plans. There were definite rules on how the pensions were to be funded to qualify as legitimate pension plans. After I moved on to another career, they changed the law regarding funding of private pension plans; apparently the law didn't apply to public pensions from all the horror stories of underfunding that I've been hearing. Are there any actuaries out there who know the facts?

In the UK most listed companies have shifted their schemes. They used to guarantee your pension but now it is a pension fund and the risk has shifted from the employer to the individual.

My last company pension scheme saw me pay 5% of my salary into my pension fund and this was matched by my employer. It was ok but not as good as a final salary scheme.

I worked at my last employer for 22 years, which qualified me for a decent pension, what we call a "defined benefit" plan, i.e., one which pays you a certain amount based on your final salary and years of service. They ended that a few years before I retired; people hired after a certain date were no longer included in the defined benefit plan. Fortunately for me, I was already vested so I get my money on the first of every month.

They also had a pension fund that I contributed a good part of my salary into over the years. Contributions were made with pre-tax income. In the U.S.A., those are generally termed 401k plans, but since I worked for a non-profit organization, mine was called a 403b plan. Same thing; I now have a lump of money that I have to withdraw a certain amount from each year based on my age and the withdrawals are taxable income.

You are a lucky Guy. My wife has a defined benefit (final salary) pension that is the gold standard. My eldest son works for the fire service and he has one as well. He started there when he was 18 and moaned like hell when I made him sign up to it. When I am dead and gone he will raise a glass to me.