FTSE350 pension deficits swing by £17 billion during roller-coaster January

  • 4 February 2016
  • United Kingdom, London
  • Equity market falls contributed to deficit peak of £83  billion during January
  • FTSE350 accounting deficits increased slightly to £66 billion at end of January 2016.

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 increased slightly from £64bn at the end of December to £66bn on 29 January 2016. However, extreme volatility in the equity markets saw deficits hitting £83bn during the month with a £17bn difference between the low and high point in the month.

At 29 January 2016, asset values were £644bn (representing an increase of £4bn compared to the corresponding figure of £640bn as at 31 December 2015), and liability values were £710bn, representing an increase of £6bn compared to the corresponding figure of £704bn at the same date.

“It may come as a surprise that despite the fall in global stock markets during January deficits have only increased slightly over the month.” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “In part this is a recovery from a particularly difficult first half of the month for equity values, but it also reflects that on average around 50% of schemes’ assets are now invested in corporate bonds and Gilts, which increased in value over the month.” added Mr Tayyebi. 

Le Roy van Zyl, Principal in Mercer’s Financial Strategy Group, said, “January can be summed up with the word “volatile”. The measure used to report pension scheme deficits in companies’ accounts fluctuated between £66bn and £83bn during the month.  The volatility of funding measures used by pension scheme trustees to determine deficit contributions is likely to have been even greater. There are a number of important drivers for significant continued uncertainty in 2016 (e.g. Chinese economy), so we do not expect conditions to calm down any time soon. Under such conditions it is very important that trustees and sponsors have a robust risk and cost management plan, mitigating threats and taking advantage of opportunities. This also fits with the Pensions Regulator’s recent Integrated Risk Management guidance which emphasises the need for looking all key areas of potential risk. In our experience, volatile market conditions can present good opportunities for those that are well prepared and ready to act.”

Mercer’s data relates to about 50% of all UK pension scheme liabilities and analyses 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. But data published by the Pensions Regulator and elsewhere tells a similar story.

Notes for editors
Mercer estimates the aggregate combined funded ratio of plans operated by FTSE350 companies on a monthly basis. This is based on projections of their reported financial statements adjusted from each company’s financial year end in line with financial indices. This includes UK domestic funded and unfunded plans and all non-domestic plans. The estimated aggregate value of pension plan assets of the FTSE350 companies at 31 December 2015 was £640 billion, compared with estimated aggregate liabilities of £704 billion. Allowing for changes in financial markets through to 29 January 2016, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £644 billion, compared with the estimated value of the aggregate liabilities of £710 billion.

About Mercer
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and human capital. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.

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