Britain's biggest firms in line for mega profit boost after getting on top of pension problems

Oliver Gill
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2017 Brisbane International - Day 5
Pension deficits have become something of a millstone around the neck of many firms in recent years (Source: Getty)

Britain's biggest companies received an £8bn boost during 2017 as cumbersome pension deficits fell by almost a tenth over the last 12 months.

The aggregate shortfall for FTSE 350 companies with a final salary retirement schemes fell from £84bn to £76bn last year, according to figures released today by actuarial specialists Mercer.

Although the value of pension commitments rose by £36bn to £857bn, the assets used to fund them increased by £44bn to £781bn.

And Mercer estimated the deficit reduction could boost profits of FTSE 350 firms by £400m during 2018.

Mercer partner Alan Baker said pension savings could "be invested to stimulate growth and drive the British economy, or can be returned directly to investors".

He added: "The pension deficit decrease is a welcome reversal of the trend in recent years that saw the deficit more than double in 2016 alone."

Read more: Swapping Swansea for Croydon: Pension lifeboat picks DVLA boss as new chief

In December, a spotlight was shone on the importance of managing pension deficits when Toys R Us' £25m retirement fund shortfall threatened the existence of UK operations and put more than 3,000 jobs at risk weeks before Christmas.

And last October analysts predicted BT's pension shortfall – one of the largest in the UK – could halve to £4.4bn, instead of increasing to around £11bn as previously feared as interest rates eased up.

Despite deficits being on the wane, Mercer partner Andrew Ward warned: "The level of risks being taken are still significant and the positive outcome we have seen for 2017 is very closely linked to stock market performance.

"As we move into 2018, it’s important for individual schemes to consider how prepared they are for any market shocks.

With Brexit related uncertainty trustees need to consider the potential impact on their sponsor’s financial security. Against this backdrop, we expect schemes to reduce risk and consolidate gains. The pace of risk management activity we saw in 2017 is likely to accelerate and we expect 2018 to be the biggest year ever for pension risk transfer.

Read more: 3,000 Toys R Us jobs at risk as pension lifeboat to block restructuring

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