On February 3rd, Johnston Press **Johnston Press ** (LON:JPR) put out an RNS stating that following an independent review their pension deficit has been reduced from £90m on 3/1/15 to £53m on 3/1/16. Following the announcement, the share price jumped 12%.

This is a massive deficit reduction of 41% at one stroke which is unusual but not entirely unheard of. The company also stated that full details of the study and assumptions used in calculating the changes will be presented on 22 March 2016.

In this note, (1) I will look at some of the details behind the announcement, (2) consider any read-across and (3) provide a partial list of companies with current pension deficits.

**Detailed Look**

A pension deficit is the difference between two very large numbers, pension assets and pension liabilities. In the case of JPR, the deficit of £90m was the difference between £480m of assets and £570m of liabilities.

The actuarially calculated pension liability is based on a number of assumptions, the key ones being net discount rate, inflation rate, mortality and longevity rates.

Ahead of the full details to be disclosed on 22 March, it is clear that the company has assumed a higher discount rate and possibly changed the mortality and longevity assumptions. Out of all the liability assumptions, the most sensitive is undoubtedly the discount rate. In fact the company has been very helpful in their 2014 accounts by providing a sensitivity analysis.

A 0.1% increase in the discount rate would reduce the pension liabilities by £9m. The discount rate they used on 3/1/15 was 3.55%. A £37m reduction therefore equates to an increase of 0.41% making the new discount rate 3.96%. Of course the actual new discount rate would be less than this if mortality and longevity rates have also been revised favourably.

So what we can infer from this is that a small change in the discount rate, from 3.55% to say 4%, can make an enormous difference to the pension deficit. In the case of JPR, it reduced the deficit by some 40%.

The impact on the accounts is as follows. (1) The balance sheet is strengthened by reducing the long term liabilities by £37m. (2) It will allow the company to reduce their annual deficit reduction contributions (slated to be some £10m in 2016/17). Any reduction will need to…

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