Two-thirds of FTSE 100 pension deficits could be wiped out if the inflationary increases attached to schemes were changed.
The estimated pension deficits of the UK's blue-chip companies stood at £46bn at the end of July 2016 according to a report compiled by Lane, Clark & Peacock (LCP).
Scheme pay-outs are typically increased by inflation each year, often referencing the retail price index (RPI). But if this was changed to the lower consumer prices index (CPI), LCP estimated a liability reduction of £30bn.
The report comes in the wake of an announcement last Friday that trustees of the British Steel Pension Scheme – the scheme attached to Tata Steel – provided the government evidence that the scheme could stay out of the Pensions Protection Fund (PPF) by moving its inflationary measure similar from RPI to CPI.
Such a move could save the PPF from shouldering a reported £1.5bn of liabilities.
On the same day, food and drink giant Nestle announced that it had agreed with unions to link capped final salary payment to the CPI, although this remains subject to trustee approval.
LCP said that at the end of July 2015, aggregate pension deficits of the FTSE 100 stood at £25bn. Although in the second half of 2015 deficits reduced – even going into surplus for short period – falling yields pushed schemes back into negative territory.
"FTSE 100 companies seem to have ridden out Brexit reasonably well, reflecting the level of protection that many put in place against falling interest rates," said Bob Scott of LCP.
Companies paid out £53bn in dividends during 2015, 25 per cent more than the aggregate deficits and five times the contributions made during the year to fund defined benefit pension schemes.