FTSE350 pension scheme deficits remain near high point

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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 largest 350 listed companies has increased over April. The deficit increased slightly from £127bn at 31 March 2015 to £128bn at 30 April 2015 and funding levels remain at 83%.

At 30 April 2015, asset values were £625bn (representing a fall of £4bn compared to the corresponding figure of £629bn as at 31 March 2015), and liability values were £753bn (representing a decrease of £3bn compared to the corresponding figure of £756bn at 31 March 2015). Liability values have fallen, driven by an increase in corporate bond yields, however the improvement has been offset by a fall in asset values, according to Mercer.

“The deficit remained substantially unchanged during April. This masks what were – again – relatively significant changes in corporate bond yields and market implied inflation over a one month period. This month they happen to have had broadly opposite effects on the calculation of the liabilities. This volatility continues the trend in recent months which has seen a 50 basis point difference between the respective high points and low points of both corporate bonds yields and market implied inflation so far this year alone.” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business.

Le Roy van Zyl from Mercer’s Financial Strategy Group said, “The continuing poor funding position as at the end of April (deficits have increased by almost 20% since the start of the year) is disappointing news for pension scheme sponsors and trustees. When one looks at the constituent parts of the market forces driving this deficit, it is however clear that certain elements are doing well (particularly equities) while others are particularly negative (interest rate reductions). But this situation can turn around quickly, with just the last couple of days showing improvement in interest rates but a deterioration in equities. Dealing with the pension scheme risk at an acceptable cost is therefore very much about looking “below the headlines”, addressing the individual financial drivers, and being responsive to emerging opportunities and threats.”

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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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