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 by £9bn over the course of June, standing at £72bn at the end of the month, a fall from £81bn at the end of May.
The increase was driven by an £11bn increase in assets to £814bn compared to £803bn at the end of May. Liability values rose from £884bn at 31 May 2021 to £886bn at the end of June 2021, driven by a fall in corporate bond yields offset by a small fall in market expectations for future inflation.
Charles Cowling, Chief Actuary at Mercer, said: ““Funding levels continue to improve as markets remain favourable, despite the looming threat of inflation and the UK’s challenging emergence from the Covid-19 lockdown. This month, inflation hit a two-year high and the Bank of England expects it to rise further. However, the Bank still voted last week to hold interest rates at their current record low levels and their quantitative easing program unchanged.”
Mr Cowling continued: “These conditions are challenging for pension schemes and trustees who, with no respite on persistently high pension liabilities, are being called on by TPR to establish a clear path to their long term objective. But with positive market conditions, there are opportunities for trustees to lock into gains and get ahead on this journey. Trustees should therefore be vigilant to such opportunities and consider planning now how they propose to meet the Regulator’s new objective.”
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.