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 reduced slightly from £160bn[1] at the end of August to £152bn on 30 September 2016. Corporate bond yields increased over the month, however the benefit of that was largely offset by a rise in market implied inflation.
At 30 September 2016, asset values were £720bn (representing a fall of £5bn compared to the corresponding figure of £725bn as at 31 August 2016), and liability values were £872bn, representing a fall of £13bn compared to the corresponding figure of £885bn at 31 August.
“The net change in deficits from the start to the end of September has been relatively small compared to recent months but it does buck the trend of the straight increase in deficits month on month since February. Even so, deficits have increased by over £100bn since the start of the year.” said Ali Tayyebi, Senior Partner in Mercer’s Retirement business. “As we approach the accounting year end for many companies we are getting nearer to the time that these deficits will now be crystallised on the balance sheet.”
Le Roy van Zyl, Senior Consultant in Mercer’s Financial Strategy Group, said, “September was another very volatile month in pension scheme financing. This volatility again underscores that schemes positioned for taking advantage of (frequently short lived) improvements in equity markets, interest and inflation rate market experience will have had valuable de-risking opportunities in recent months. Schemes who were able to transact are those that had pragmatic monitoring and execution frameworks in place.
“When deciding the best route forward, trustees and sponsors must clearly consider taking material steps to achieve cost-effective risk management; many clients have benefitted from a series of small but incremental changes over the course of the year. It is also interesting to note that despite these market conditions we are seeing continuing activity in the risk transfer market – the number of clients signing up to our online Pension Risk Exchange continues to grow and we are expecting a busy fourth quarter for the bulk annuity market, ” Mr van Zyl added.
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 2015 was £634 billion, compared with estimated aggregate liabilities of £673 billion. Allowing for changes in financial markets through to 30 September 2016, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £720 billion, compared with the estimated value of the aggregate liabilities of £872 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.
Sample Data Points:
[1] The latest data has been updated to reflect the actual published accounting information for companies with year-ends up to 31 December 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.
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