4 March 2019
United Kingdom, London
- Pension deficit for largest UK companies up to £45bn at the end of February
- Rising market implied inflation drives £5bn increase in pension liabilities
- Increase in deficit highlights the importance of trustees managing risks appropriately
Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for FTSE350 companies increased from £41bn to £45bn at the end of February. The move was caused by an increase in liabilities from £806bn to £811bn, partially offset by asset values increasing from £765bn to £766bn.
Maria Johannessen, Partner at Mercer, said: “It is disappointing to see the pension gap increase in February, having held steady in January. A £1bn increase in asset valuations wasn’t enough to offset a big rise in liabilities driven by an increase in market implied inflation alongside a small fall in corporate bond yields. The rising deficit reinforces how important it is for trustees to manage risk and shield themselves from market movements.”
LeRoy Van Zyl, a strategic advisor and Partner at Mercer, added: “Funding level volatility is set to continue over an important few weeks for British politics, alongside an uncertain global economic environment. As the UK edges closer to the Article 50 deadline, it’s important both trustees and scheme sponsors take the time to fully understand the risk they’re running and are prepared to take action to ensure it falls within their risk appetite.”
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 January 2019 was £765 billion, compared with estimated aggregate liabilities of £806 billion. Allowing for changes in financial markets through to 28 February 2019, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £766 billion, compared with the estimated value of the aggregate liabilities of £811 billion.
Sample Data Points:
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