- Pension deficit for UK’s largest companies reduced by £3 billion in April
- £2 billion fall in liabilities due to increase in corporate bond yields
- Trustees and sponsors should remain vigilant and prioritise risk management
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 decreased for the first time since November 2018, from £55 billion at the end of March to £52 billion by the end of April.
A 0.1% increase in corporate bond yields, which was partially offset by an increase in market implied inflation, prompted a £2 billion decline in liabilities to £845 billion. Asset values increased by £1 billion, from £792 billion to £793 billion.
Maria Johannessen, Partner at Mercer, said: “This month’s modest improvement in the funded status is welcomed after a period of sustained increase in the FTSE 350 pension deficit. There continues to be a significant gap to bridge before schemes return to surplus. This combined with the volatility on the horizon means that corporates should consider locking in gains and manage risk.”
Charles Cowling, Actuary at Mercer, added: “At a time of considerable political turmoil and Brexit uncertainty, it is surprising that markets have remained relatively calm. The Bank of England has indicated that the next change in interest rates could be in either direction, depending on the outcome of Brexit. A no-deal Brexit could lead to the double whammy of a reduction in interest rates at the same time as a fall in sterling, leading to higher inflation. This could send pension deficits back towards previous highs. Trustees need to remain vigilant and take advantage of current positive conditions by looking for opportunities to de-risk.”
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 2018 was £747 billion, compared with estimated aggregate liabilities of £788 billion. Allowing for changes in financial markets through to 30 April 2019, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £793 billion, compared with the estimated value of the aggregate liabilities of £845 billion.
Mercer delivers advice and technology-driven solutions that help organizations 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 75,000 colleagues and annualized revenue approaching $17 billion, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. Marsh & McLennan Companies is also the parent company of Marsh, which advises individual and commercial clients of all sizes on insurance broking and innovative risk management solutions; Guy Carpenter, which develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities; and Oliver Wyman, which serves as a critical strategic, economic and brand advisor to private sector and governmental clients. For more information, visit www.mercer.com. Follow Mercer on Twitter @UKMercer.
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