London, 02 October 2020
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 rose slightly from £70bn at the end of August 2020 to £73bn on 30 September. Liability values rose by £8bn to £877bn at the end of September compared with £869bn at the end of August. Asset values were £804bn (a rise of £5bn compared to £799bn at the end of August).
Charles Cowling, Chief Actuary, Mercer, said: “September was another quiet month for most pension schemes as markets continued to hold up well, whilst inflation continued to decline. However, pension schemes are facing a variety of potential risks. A second wave of coronavirus is hitting the UK, resulting in further lockdowns and economic pain; the Brexit negotiations appear to be deadlocked raising doubts about an EU trade deal and the outcome of the contentious US Presidential Election could impact markets. Finally, the Bank of England seems to be considering the possibility of negative interest rates, with a rate cut of 0.25% potentially adding a further £35bn to pension scheme deficits.
“All this uncertainty creates more risk for pension trustees whilst many employers are going through serious challenges within their own businesses. In addition, the Pensions Regulator has just concluded a consultation on the framework for the regulation of pension schemes which could encourage trustees to target more prudent long term funding objectives, adding further strain on already stretched finances.”
Maria Johannessen, Partner and Corporate Consulting Leader at Mercer said: “With all this systemic risk in the economy corporates and trustees are urged to monitor carefully and be ready to seize opportunities to manage risk. Now may be a good time for trustees to consider a move to contractual cash flow matching investments.”
Mercer’s Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities, with analysis focused on 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. 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 2019 was £775 billion, compared with estimated aggregate liabilities of £815 billion. Allowing for changes in financial markets through to 28 September 2020, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £804 billion, compared with the estimated value of the aggregate liabilities of £877 billion.
About Mercer
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit uk.mercer.com. Follow Mercer on Twitter @UKMercer. In the UK, Mercer Limited is authorised and regulated by the Financial Conduct Authority.
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