London, 2 June 2017
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 £145bn at the end of April to £134bn on 31 May 2017. At 31 May 2017, asset values were £749bn (an increase of £10bn compared to the corresponding figure of £739bn at the end of April 2017), and liability values fell by £1bn to £883bn compared to £884bn at the end of April.
“The improvement in the funding level over May was predominantly due to an increase in asset values which reached another new high. Liability values remained substantially unchanged with a reduction in long dated corporate bond yields being offset by a reduction in the market's expectation for long-term inflation,” said Ali Tayyebi, Senior Partner at Mercer. “With stock markets around the world at all-time highs, trustees and companies should consider the merits of putting in place some downside protection for such assets.”
Le Roy van Zyl, Partner at Mercer, added: “With funding levels only showing marginal improvement at end May, it is too early for any sense of relief. Indeed, at times during the month equity markets and long term interest rates were showing renewed signs of uncertainty. With this uncertainty likely to persist for an extended period (e.g. around the Brexit outcome and the economic developments in the US), Trustees and Companies need to reassess whether they can continue to “wait for better times”, given the risk of conditions actually worsening. The majority of risk management steps are actually more a matter of “when to implement”, rather than “should we implement”. Seen in this context, it may well be better to be more realistic about when is the right time to take action. Building a business plan around the resultant actions can then drive a significant change for the benefit of all the stakeholders.”
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 31 May 2017, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £749billion, compared with the estimated value of the aggregate liabilities of £883 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 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.
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