Mercer | FTSE350 pension gap narrows significantly in Q1 2018

FTSE350 pension gap narrows significantly in Q1 2018

FTSE350 pension gap narrows significantly in Q1 2018

  • 4 April 2018
  • United Kingdom, London
  • FTSE350 pension deficit cut by £4 billion in first quarter of 2018, continuing substantial reductions achieved in 2017
  • Fall achieved despite £15bn wiped off asset valuations since start of 2018
  • FTSE350 pension gap and funding level remain the same at £72bn and 91%, respectively in March compared to the position at the end of February

Mercer has today published its Pensions Risk Survey for the first three months of 2018, which shows a significant fall in the deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies. The deficit has already fallen by £4 billion to £72 billion so far this year, continuing the reductions achieved in 2017, in which the gap fell by £8 billion; a fall of over 9%. 

The fall in accounting deficits of the UK’s 350 largest listed companies has been achieved through a reduction of pension schemes’ liabilities, as a result of rising corporate bond yields, which has outweighed a notable fall in asset valuations. Liabilities have reduced by £19 billion to £838 billion, while asset valuations have fallen by £15 billion to £766 billion in the first quarter of 2018. 

Alan Baker, Partner and Chair of Mercer’s DB Policy Group, said: “2018 has already delivered a meaningful reduction in the pensions gap, which frees up money to either be invested in growth or returned directly to investors. However, the continuing decline of asset valuations serves as an important reminder of the very real risks facing pension schemes. Trustees and sponsors must actively monitor and mitigate the risks they’re running, to ensure their exposure is in line with their risk appetite.” 

Le Roy van Zyl, Partner and Strategy advisor, added: “The quarter saw very significant asset and liability swings, with recent declining asset valuations creating cause for concern. In response, we continue to see schemes opting for strategies that protect themselves from the most adverse outcomes, whilst retaining some upside potential. Experience is also emphasising the need to be able to react quickly to opportunities that may well be short lived.”

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 2017 was £781 billion, compared with estimated aggregate liabilities of £857 billion. Allowing for changes in financial markets through to 29 April 2018, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £766billion, compared with the estimated value of the aggregate liabilities of £838 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 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 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.

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