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FTSE 350 pension deficit stable as new lockdown measures announced

by LLB Editor
2nd Oct 20 9:14 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 rose slightly from £70bn at the end of August 2020 to £73bn on 30 September. Liability values rose by £8bn to £877bn at the end of September compared with £869bn at the end of August. Asset values were £804bn (a rise of £5bn compared to £799bn at the end of August).

Charles Cowling, Chief Actuary, Mercer, said: “September was another quiet month for most pension schemes as markets continued to hold up well, whilst inflation continued to decline. However, pension schemes are facing a variety of potential risks. A second wave of coronavirus is hitting the UK, resulting in further lockdowns and economic pain; the Brexit negotiations appear to be deadlocked raising doubts about an EU trade deal and the outcome of the contentious US Presidential Election could impact markets. Finally, the Bank of England seems to be considering the possibility of negative interest rates, with a rate cut of 0.25% potentially adding a further £35bn to pension scheme deficits.

“All this uncertainty creates more risk for pension trustees whilst many employers are going through serious challenges within their own businesses. In addition, the Pensions Regulator has just concluded a consultation on the framework for the regulation of pension schemes which could encourage trustees to target more prudent long term funding objectives, adding further strain on already stretched finances.”

Maria Johannessen, Partner and Corporate Consulting Leader at Mercer said: “With all this systemic risk in the economy corporates and trustees are urged to monitor carefully and be ready to seize opportunities to manage risk. Now may be a good time for trustees to consider a move to 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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