UK pensions: Funding of defined benefit (DB) schemes is getting a bit better, with FTSE 100 companies covering more and more of their liabilities

Funding for defined benefit (DB) pension schemes is improving, with blue chip companies now covering most of their liabilities, figures released today show.

According to the research by JLT Employee Benefits, the total deficit across all UK private sector DB pension schemes stood at £209bn at 29 February 2016, which represents a funding level of 85 per cent.

By comparison, at 28 February 2015, the deficit was £253bn representing a funding level of only 83 per cent.

Meanwhile, FTSE 100 companies have improved their funding level from 87 per cent to 90 per cent in the space of the year, while their combined deficit has dropped from £85bn to £62bn.

Charles Cowling, director at JLT Employee Benefits, remarked that the fall in deficit levels was "perhaps surprising against an uneasy market backdrop of high volatility, pressure on Sterling, fears of a Brexit and continued low interest rates."

JLT Employee Benefits has previously warned that, if a rise in interest rates fails to materialise one year or more after the market expects it to, it could increase pension scheme liabilities by a total of £62bn.

Cowling continued:

Further uncertainty looms in anticipation for George Osborne’s Budget in just two weeks. Osborne has surprised the pensions industry more than once with daring changes to pensions taxation – not all of which have been welcomed. Faced with growing deficit problems on Government finances, there might be a strong temptation for the Chancellor to raid pension schemes once again for extra tax revenue.