Welcome to Hymans Robertson’s second annual pension deficit analysis, which puts the pension schemes of the FTSE 350 in the context of the businesses that support them.

The metrics in this report illustrate the ability of every company in the FTSE 350 (with a defined benefit pension scheme) to support its pension scheme. This is far more important than considering the pension scheme in isolation. As well as giving you an overall picture, we focus on sectors and a number of specific companies within each sector.

For many companies, the pension scheme is not a significant burden and a relatively small proportion of corporate earnings are used to support the scheme. Despite this, significant risks remain un-hedged in many pension schemes. From a shareholder perspective, many of these risks are unrewarded. In our view, companies in this fortunate situation should consider increasing pension scheme contributions to finance de-risking of the pension scheme and ultimately enhance shareholder value by reducing the cost of capital.

In contrast, pension schemes remain a very significant burden for a small minority of companies. In our view, these companies need to have a difficult, but honest, conversation with the pension scheme trustees, and possibly the Pensions Regulator, about the optimal way to fund the pension scheme. Often, the chances of paying out members’ benefits in full can be improved by taking less investment risk and accepting that it will take a very long time to reach full funding. In a few cases, the prospect of paying members benefits in full are remote. Trustees and companies need to be realistic about what can be achieved.

We hope you find this report interesting and informative. We hope to generate, through this report, a broader debate on pensions risks and would welcome any feedback.