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Mercer’s response to the auto-enrolment review

Boost for UK economy as £8 billion pension deficit reduction set to lift FTSE350 profits

  • 05 January
  • United Kingdom, London
  • Pension deficits improved by £8bn in 2017 as scheme assets increased by over £40bn
  • 2018 profits at 350 biggest UK listed companies to improve by c.£400m as pension costs fall
  • 2018 expected to be a record for pension risk transfer as uncertainty over Brexit will drive trustees to reduce risk further

Mercer has today published its 2017 Pensions Risk Survey which shows that the deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies decreased from £84bn at the end of 2016 to £76bn at the end of last year; a fall of over 9%.

At 31 December 2017, liability values increased by £36bn to £857bn compared to £821bn at the end of 2016. Asset values were £781bn (an increase of £44bn compared to the corresponding figure of £737bn at the end of December 2016).

Looking forward, Mercer’s research estimates that the improved financial position of FTSE350 pension schemes may directly lead to increased profits of around £400m in 2018.

Alan Baker, Partner and Chair of the DB Policy Group at Mercer said: “This is really positive news for the UK economy because improved profits in 2018 resulting from lower pension costs could amount to £400m among the FTSE350. This is money which can be invested to stimulate growth and drive the British economy, or can be returned directly to investors. The pension deficit decrease is a welcome reversal of the trend in recent years that saw the deficit more than double in 2016 alone. Trustees who run schemes however need to continue to be prudent and ask themselves how much risk they need to take to meet their funding requirements.”

Andrew Ward, Partner and Head of Risk Transfer Consulting at Mercer added: “The reduction in pension deficits is great news but the level of risks being taken are still significant and the positive outcome we have seen for 2017 is very closely linked to stock market performance. As we move into 2018, it’s important for individual schemes to consider how prepared they are for any market shock. With Brexit related uncertainty trustees need to consider the potential impact on their sponsor’s financial security. Against this backdrop, we expect schemes to reduce risk and consolidate gains. The pace of risk management activity we saw in 2017 is likely to accelerate and we expect 2018 to be the biggest year ever for pension risk transfer.”

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 to 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 30 December 2016 was £737 billion, compared with estimated aggregate liabilities of £821 billion. Allowing for changes in financial markets through to December 2017, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £781billion, compared with the estimated value of the aggregate liabilities of £857 billion.

About Mercer

Mercer delivers advice and technology-driven solutions that help organisations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 22,000 employees are based in 43 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With more than 60,000 colleagues and annual revenue over $13 billion, through its market-leading companies including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.