FTSE350 pension deficits


FTSE350 pension deficits hover at £63 billion despite equity market rises

  • 5 November 2015
  • United Kingdom, London
  • Only £2bn reduction in accounting deficits since September
  • Rise in market expectations of inflation offset falls in yields

London, 5 November 2015
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 slightly from £65bn [1] at the end of September to £63bn on 30 October 2015. This was driven by an increase in asset values which was offset by a rise in market implied inflation increasing liabilities.

At 30 October 2015, asset values were £639bn (representing a rise of £8bn compared to the corresponding figure of £631bn as at 30 September 2015), and liability values were £702bn, representing a rise of £6bn compared to the corresponding figure of £696bn at the same date.

“The positive trend of reducing accounting deficits since July has continued during October, albeit the position has been very volatile since the start of the year.” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. ”Notwithstanding that ongoing volatility, it is interesting to see that a steady stream of employers and pension fund trustees continue to address their risk management concerns through bulk annuity transactions, and this is borne out further by the high level of interest in Mercer’s new Pension Risk Exchange. After a slow start I would expect 2015 to end up close to the record year of 2014 where £13bn of liabilities were transferred to insurers,” continued Mr. Tayyebi.

Le Roy van Zyl, Principal in Mercer’s Financial Strategy Group, said, “October provided some respite in terms of improving markets. However, it is difficult to ignore the fact that there remain a number of scenarios that could lead to further headwinds for pension funds. For example, the economic situation in China and the emerging markets is still far from clear. Against this backdrop, companies and pension fund trustees have to have an ongoing debate on how they can best work together to ensure prudent financial management without taking short-termist actions they are likely to regret in future. A key tool to achieve this is to set up a Joint Working Group – something a number of our clients are finding very valuable.”

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 2014 was £624 billion, compared with estimated aggregate liabilities of £698 billion. Allowing for changes in financial markets through to 30 October 2015, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £639 billion, compared with the estimated value of the aggregate liabilities of £702 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.

[1] The latest data has been updated to reflect the actual published accounting information for companies with year-ends up to 30 June 2015. These figures have been adjusted for changes in market conditions since that date. Prior month figures have been restated to allow for this new information.