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FTSE 350 pension scheme deficits increase as liabilities rise faster than assets

by LLB Editor
2nd Aug 21 2:43 pm

Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes and other post-retirement benefit plans for the UK’s 350 largest listed companies rose by £13bn over the course of July, standing at £85bn at the end of the month, an increase from £72bn at the end of June.

The increase was driven by a £42bn increase in liabilities to £928bn compared to £886bn at the end of June, driven by a fall in corporate bond yields and a small increase in market expectations for future inflation. Asset values rose from £814bn at 30 June 2021 to £843bn at the end of July 2021.

Tess Page, UK Wealth Trustee Leader at Mercer, said: “Amid the cautious re-opening of the UK to something approaching “normal life”, the spotlight is still on the contagious delta variant and its impact on re-opening plans and economic growth around the world.

“July has been a reminder that funding levels can go down as well as up, and for schemes that have not hedged their risks there remains high volatility. In recent months some schemes have locked into gains in order to get ahead on their long term journey plans – trustees and employers should therefore be vigilant to such opportunities and prepare for how they will respond to future upside.”

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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