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 from £134bn at the end of May to £131bn on 30 June 2017. At 30 June 2017, liability values fell by £14bn to £869bn compared to £883bn at the end of May. Asset values were £738bn (a fall of £11bn compared to the corresponding figure of £749bn at the end of May 2017).
“Asset values and liability values tracked each other relatively closely over the month even after the talk of possible future interest rate rises increased,” said Ali Tayyebi, Senior Partner at Mercer. “However, the apparent stability of the deficit hides the fact that liability values varied by nearly £30bn between their high and low values during the month. This highlights the potential for continued volatility in deficits in scenarios where assets and liabilities do not track so closely to each other.”
Le Roy van Zyl, Partner at Mercer, added: “The drivers affecting pension fund finances are still volatile. For example, towards the end of the month funding levels were supported significantly by improving long term interest rates. Given that we have had such improvements before, only for rates to subsequently deteriorate again, trustees and sponsors need to decide whether to lock in some of this good news. Some may have programmes in place already to de-risk as soon as conditions improve, but these are quite possibly out of date.
“With changes in economic outlook, developments in a sponsor’s financial position, and the fluctuating attractiveness of other sources of risk, a different de-risking action may be appropriate. Indeed, it may be appropriate to replace a scheduled action with another that better fits the current circumstances and views. Under an integrated risk management framework it is important that regular review takes place across the range of areas being pursued.”
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 31 December 2016 was £857 billion, compared with estimated aggregate liabilities of £720 billion. Allowing for changes in financial markets through to 30 June 2017, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £738billion, compared with the estimated value of the aggregate liabilities of £869 billion.
Sample Data Points:
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 careers 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 people. With annual revenue of $13 billion and 60,000 colleagues worldwide, 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 www.mercer.com. Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.
Africa