Mercer | Pensions Risk Survey data February 2017


FTSE 350 pension deficits hold steady as liability increases offset asset gains

  • 2 March 2017
  • London, United Kingdom
  • Assets increased, driven by both bond and equity markets
  • But falling bond yields increased liabilities
  • Overall pension deficits holding steady

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 £140bn at the end of January to £137bn on 28 February 2017.

At 28 February 2017, asset values were £735bn (representing an increase of £21bn compared to the corresponding figure of £714bn at 31 January 2017), and liability values were £872bn (representing an increase of £18bn compared to the corresponding figure of £854bn at the end of January).

“Overall February was a fairly steady month for pension scheme deficits. Corporate bond yields falling back close to their levels at the start of the year was the driving force for the increase in liabilities, albeit this was to some extent offset by a reduction in market expectations for long-term inflation. The increase in liabilities was matched by a broadly similar increase in asset values so that deficits reduced marginally by £3bn over the month,” said Ali Tayyebi, Senior Partner at Mercer. “With the major political surprises of 2016 behind us and a fairly steady start to 2017 it might be tempting to think that we may be entering calmer waters. Clearly there is no certainty of that and the continued size of the deficits means that active risk management and improvement in funding levels and security of DB pension schemes will remain a high priority for many companies and most pension scheme trustees.”

Le Roy van Zyl, a Mercer Senior Consultant, commented, “Despite the relative stability in the funding level over the last 3 months, it is important to recognise that some areas of investment performance have been particularly good, with others less so. This means that selectively locking in some of the good performance can be a material step in stabilizing the funding level going forward. Some trustees and scheme sponsors may already be in a position to quickly take advantage of such potentially short-lived opportunities. For others, this should act as a “wake-up call” to make sure there is a joined up business plan in place that allows appropriate rapid action to be taken.” 

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 28 February 2016, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £735 billion, compared with the estimated value of the aggregate liabilities of £872 billion.

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