Pension deficits hit a record year-end high as experts warn on implications

Britain's pension gap almost doubled during 2016 to the highest ever year-end level, according to data released today.

The aggregate deficit of defined benefit pension schemes leapt to £434bn, according to JLT Employee Benefits, up from £233bn, 12 months before.

Although deficits have pared back from all-time highs of over £500bn in August, experts predicted bumper pension holes weren't going away quickly.

"Pension scheme deficits are still significantly larger than the levels at the start of the year and there appears to be no relief in sight for companies with large pension schemes," said JLT director Charles Cowling.

Threat

The threat defined pension deficits pose to corporates was brought into focus during 2016 with the collapse of high-street darling BHS under the weight of a £500m pension black hole.

And Cowling predicted pressure from deficits could stymie some of the UK's businesses' ability to pay returns to shareholders.

There will be instances where the pension scheme will represent a serious threat to the company’s balance sheet and, in some cases, the company’s ability to pay dividends.

One firm that will be feel the heat of a pensions shortfall in 2017 is telecoms giant BT, which will kick-off its triennial valuation. This is a process where pension scheme trustees and a company negotiate what level of funding is required going forward to ensure member pay-outs are met as they fall due.

The valuation of the scheme for triennial purposes differs from accounting valuations. However, it has one of largest deficits in the UK according to its accounts, with a hole in excess of £7.6bn.