Mercer’s Pensions Risk Survey shows that asset values fell by £5 billion

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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 rose from £73bn at the end of September 2020 to £75bn on 30 October. Liability values fell from £877bn at 30 September to £871bn at the end of October. Asset values were £796bn (a fall of £5bn compared to £804bn at the end of September).

Charles Cowling, Chief Actuary at Mercer, said: “Covid-19 storm clouds are gathering again as markets prepare for a second wave of coronavirus, and the impact wide ranging lockdowns will have on global economic growth. In the UK, the latest data from the Office of National Statistics reveals that the economy is growing slower than forecast, remaining at 9.2% below its pre-pandemic peak.

“With the outlook for the economy weakening, there are mixed messages from the Bank of England on interest rates. Following initial anticipation negative interest rates would be introduced, this month the Bank suggested that “time is not right now”, whilst also hinting another round of Quantitative Easing (QE) may be imminent.”  

Mr Cowling added: “Finally, various political uncertainties caused by the forthcoming US Presidential Election and Brexit negotiations, indicate further risk for pension trustees at a time when many employers are facing challenges and covenants are under big pressure. Trustees are therefore urged to monitor their situation wisely and seek opportunities to reduce risk where possible.”

Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on 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. Data published by the Pensions Regulator and elsewhere tells a similar story.

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