FTSE350 pension gap has more than halved, finds Mercer

FTSE350 pension gap has more than halved, finds Mercer

The accounting deficit of defined benefit pension schemes for the UK’s 350 largest listed companies decreased from £72 billion at the start of 2018 to £32 billion on 31 July, according to the Pensions Risk Survey from Mercer.

The quoted deficit for the FTSE350 was higher than the £29 billion recorded at the end of June and funding remained the same at 96%.

Mercer also found that FTSE350 liability values increased from £818 billion to £826 billion due to an increase in market implied inflation. Asset values increased from £789 billion to £794 billion, offsetting the increase in liabilities.

Ali Tayyebi, a senior partner at Mercer, explained: “The big reduction in accounting deficits so far this year is welcome news. However pension scheme trustees typically use gilt yields as a basis for measuring the funding position and setting contribution rates.”

“Gilt yields have not risen by as much as corporate bond yields since the start of the year therefore trustees may not have seen the same degree of improvement on funding valuations. Nevertheless, trustees and employers need to continue to ask themselves how much risk they need to take to meet their objectives.”

Le Roy van Zyl, a strategic advisor and partner at Mercer, added: “Whilst July saw the deficit remain stable, continued uncertainty over the outcome of the Brexit negotiations means there is a clear need for pension scheme trustees and sponsors to be prepared for the fluctuating circumstances.”

“This preparation should focus on scheme finances and risk but also the challenges of making effective decisions against this uncertain backdrop. A range of outcomes are possible and it is important that schemes work through scenarios to establish whether there would be a material impact to their scheme under any of the scenarios.”

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, according to Mercer.

Categories: News, UK Pensions

About Author