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FTSE 350 pension deficit falls back from July peak

by LLB Editor
2nd Sep 20 9:06 am

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 £103bn at the end of July 2020 to £82bn on 28 August. Liability values fell by £30bn to £940bn at the end of August compared with £970bn at the end of July. Asset values were £858bn (a fall of £9bn compared to £867bn at the end of July).

Charles Cowling, Chief Actuary, Mercer, said: “August was a quiet month for most pension schemes with markets holding up well and long-term inflation worries easing. The Bank of England held interest rates steady at record low levels as the economy and markets struggle to shrug off the uncertainty caused by the pandemic. The Bank now expects the UK economy to shrink by 9.5% this year, the biggest annual decline in a century. Unemployment is also expected almost to double by the end of 2020 as the furlough scheme comes to an end.

“However, the Bank’s latest forecasts also assume that there is no COVID-19 second wave and that the UK achieves a post-Brexit trade agreement with the EU by year-end. Both of these are far from certain. Across Europe and globally coronavirus case numbers are escalating sharply. In the absence of a vaccine emerging, any further easing of lockdown measures seems unlikely especially as September will see students returning to schools and universities in the UK.”

Mr Cowling concluded: “With all this systemic risk in the economy and markets, trustees are urged to monitor carefully and be ready to seize opportunities to reduce risk and increase hedging programmes. Now may be a good time for trustees to consider a move to lower risk contractual cash flow matching investments.”

 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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