FTSE350 PENSION GAP FELL BY MORE THAN 30% IN MAY

5 June 2018

United Kingdom, London


  • FTSE350 pension deficit cut by £16 billion in a single month
  • Asset values increased by £15 billion, despite market turbulence
  • Liabilities fell slightly by £1 billion

The UK’s FTSE350 pension gap fell by £16 billion in May to £34 billion, continuing the significant reductions achieved over the last two years. The gap stood at £72 billion at the start of the year[1], and was £156 billion as recently as September 2016. 


May’s fall in accounting deficits of the UK’s 350 largest listed companies was driven by a combination of rising asset prices and a slight fall in liabilities. Asset valuations increased by £15 billion to £791 billion, while liabilities reduced by £1 billion to £825 billion as a result of a fall in the expectation of inflation offset by lower corporate bond yields. 


Alan Baker, Partner and Chair of Mercer’s DB Policy Group, said: “This is great news for both pension schemes and company sponsors with yet another reduction in the pension gap, but we must not be complacent. Market swings could dramatically reverse these improvements and have done so in the past. Therefore, it’s important that Trustees and sponsors understand the risks they’re exposed to and have the right strategies in place to lock in these gains. As highlighted by the Pensions Regulator through integrated risk management (IRM), it’s crucial to have contingency arrangements and plans in place.” 


Le Roy van Zyl, Partner and Strategy advisor at Mercer, added: “While this is more welcome news, recent market volatility sparked by the political situation in Italy serves as a timely reminder of the speed at which things can change. We increasingly see schemes having an action focused risk and cost management plan. Such a plan will be clear on the conditions under which specific activities will be warranted, e.g. member options, insurance market solutions, and cashflow matching asset strategies. Increased market uncertainty, as we are seeing at the moment, then feeds into this plan and consequently the sequence of activities.” 


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.



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 2017 was £785 billion, compared with estimated aggregate liabilities of £857 billion. Allowing for changes in financial markets through to 31 May 2018, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £791 billion, compared with the estimated value of the aggregate liabilities of £825 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 23,000 employees are based in 44 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 nearly 65,000 colleagues and annual revenue over $14 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 www.mercer.com. Follow Mercer on Twitter @Mercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.


 


[1] Some of the previous month end figures have been restated following a change in methodology


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