£7 billon reduction in FTSE350 pension deficits in September

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The FINANCIAL — Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies fell from £85bn at the end of August to £78bn on 30 September 2015. This was driven by a fall in market implied inflation reducing liabilities. The reduction offset the fall in equity markets over the month.

At 30 September 2015, asset values were £624bn (representing a fall of £2bn compared to the corresponding figure of £626bn as at 31 August 2015), and liability values were £702bn, representing a fall of £9bn compared to the corresponding figure of £711bn at the same date.

“It might come as some relief that accounting deficits have improved further during September despite the continued fall in equity markets. However recent events have highlighted the large number of complex interlinked global and UK specific variables which will continue to drive the health of UK pension schemes going forward.” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “The Continuous Mortality Investigation has also just published its latest annual update of mortality trends which this time suggests a small reduction in projected life expectancy. This is another area which sponsors and trustees must keep under review going forward and sponsors will particularly want to make sure this is considered for their next year end disclosure,” continued Mr. Tayyebi

Le Roy van Zyl, Principal in Mercer’s Financial Strategy Group, said, “The past month has seen significant developments on world markets, and consequently how they impact pension scheme finances. The concern around the Chinese economy has become more entrenched and uncertainty persists on the path of US interest rate increases. Combined with significant setbacks for a few high profile multi-national companies, pension finances look particularly vulnerable for some. Even though the accounting view of pension finances has shown an improvement (largely for technical reasons), this is not the case for the funding measures used by many trustees, some of whom may be much more concerned, will closely monitor the situation, and in some cases establish whether remedies they have in place are still fit for purpose.”

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Mercer’s data relates to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts. Other measures are also relevant for trustees and employers considering their risk exposure. But data published by the Pensions Regulator and elsewhere tells a similar story.


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