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FTSE 350 pension scheme deficits increase despite rising yields

by LLB Reporter
2nd Feb 22 9:57 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 by £4bn over the course of January, standing at £80bn at the end of the month, an increase from £76bn at the end of December. Liabilities fell from £913bn at 31 December 2021 to £879bn at the end of January caused by a rise in corporate bond yields offset by an increase in market expectations of inflation. However, asset values fell further to £799bn compared to £837bn at the end of December leading to the increase in deficits.

Tess Page, Mercer UK Wealth Trustee Leader, said: “The cost of living may be failing to cut through politically amid the Downing Street Party rows, but inflation is certainly giving pension schemes food for thought in 2022. Investment markets also took a bit of a hit during January, with global equity prices falling back.”

Miss Page added: “Trustees and scheme sponsors are looking ahead to a busy year in pensions, with the new Code of Practice and climate change reporting on the horizon, alongside cracking GMP equalisation and preparing for pensions dashboards. Those schemes that have already tackled their key risks around investments, inflation, and interest rates will be best-placed to navigate 2022.

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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