FTSE350 PENSION LIABILITIES PEAK AGAIN AS BREXIT VOTE APPROACHES

2 June 2016

United Kingdom, London


  • Accounting deficits increased by £6bn to £98bn over May
  • Liabilities hit another record high of £761bn at the end of the month
  • Accounting deficits doubled over 3 months

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 increased from £92bn on 29 April 2016 to £98bn at the end of May.


At 31 May 2016, asset values were £663bn, representing a rise of £8bn compared to the corresponding figure of £655bn at 29 April 2016. Liability values were £761bn, representing an increase of £14bn compared to £747bn at the end of April.


“The steady fall in high quality corporate bond yields since February continued during May,” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “This pushed up the combined liability values to their highest level since we started the survey in 2007 and meant that the deficit increased again during May despite a positive month for asset values.


“It also meant that the combined deficit value has now doubled over the three month period since the end of February,” added Mr Tayyebi.  


Le Roy van Zyl, Principal in Mercer’s Financial Strategy Group, said, “May has been another volatile month in the financial position of pension schemes, with no reason to believe that things will quieten down in the months to come, with the Brexit referendum and approaching US elections just being two examples of market pressures. It is easy to forget that volatility also creates opportunities, but that these will be wasted if pension scheme trustees and sponsors are not ready to quickly take advantage of them. This could range from locking in some of the good news that may come from equity markets and/or interest rates, all the way to proceeding with previously delayed risk transfer to insurers.” 


Mr van Zyl continued, “Given this level of volatility, it is not surprising that we have already seen 60 clients (primarily across the US and UK), representing £6bn of assets, sign up to Mercer Pension Risk Exchange to better understand how the real cost of a bulk annuity transaction is changing month to month and to highlight genuine opportunities to transact.” 


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 for 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 2015 was £640 billion, compared with estimated aggregate liabilities of £704 billion. Allowing for changes in financial markets through to 31 May 2016, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £663 billion, compared with the estimated value of the aggregate liabilities of £761 billion.


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 performance 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 human capital. With 57,000 employees worldwide and annual revenue exceeding $13 billion, 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.


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