The FINANCIAL — Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit pension schemes for the UK’s largest 350 listed companies fell from £93bn at the end of May to £81bn on 30 June 2015, despite the fall in asset values.
At 30 June 2015, asset values were £624bn (representing a fall of £17bn compared to the corresponding figure of £641bn as at 29 May 2015), and liability values were £705bn (representing a fall of £29bn compared to the corresponding figure of £734bn at 29 May 2015).
“Despite the economic uncertainties in the Eurozone, pension scheme deficits improved over the month of June. The key driver for this was the increase in yields on corporate bonds which drives the calculation of the liabilities.” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “Most of the increase in bond yields took place earlier in June. More recently the coming to head of the Greek crisis towards the end of the month has, at least so far, had limited impact on bond yields. However, these events provide a very good illustration of the relative sensitivity of pension scheme deficits to changes in asset values as compared to changes in long term interest rates, as well as highlighting the variety of complex economic and global factors which drive the latter,” continued Mr. Tayyebi.
Le Roy van Zyl from Mercer’s Financial Strategy Group said, “Even though the deficit has reduced, the uncertainty around Greece and the very significant equity market “correction” in China means schemes and sponsors still face material concerns. Indeed, the deficit has deteriorated by c.£10bn in just the last two days of the month. The ability to execute a robust risk and financing management plan quickly still remains of prime importance.”
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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