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 from £137bn at the end of February to £133bn on 31 March 2017.
At 31 March 2017, asset values were £739bn (representing an increase of £4bn compared to the corresponding figure of £735bn at 28 February 2017), and liability values remained the same at £872bn compared to the value at the end of February.
Separately the latest projections from the Continuous Mortality Investigation (CMI) suggest a reduction in life expectancies compared to the previous version of the model. People are still living longer but recent improvements have been lower than previously expected. Analysis from Mercer suggests that this adjustment could remove around £28 billion of pension scheme liabilities.
“In some sense, March has been a fairly steady month and we’ve seen a small improvement in funded status from that calculated at the end of February with the deficit falling from £137bn to £133bn,” said Alan Baker, Head of DB Solutions at Mercer. “The quoted funding level improved slightly from 84% to 85% but liabilities remained stable due to the lack of change in corporate bond yields or long-term market implied inflation. But it is worth reflecting that the deficit is still well over double what it was at the end of March 2016 and historically speaking the pressure on pension schemes and sponsors remains a serious concern. In that context, clear risk management plans and an emphasis on reducing risk where possible remain crucial.”
Le Roy van Zyl, Partner at Mercer, commented, “The triggering of Article 50 in the end had very little impact on pension scheme deficits, given that markets had already anticipated events. The key drivers are now how the Brexit discussions proceed, and how the UK and world economy progresses. Pension deficits will be sensitive to emerging conditions, and unexpected developments can lead to significant volatility. To some extent it will be surprising if there are not material surprises in the months and years to come. Scheme trustees and sponsors must therefore be ready and able to weather any storms and take advantage of any opportunities. This requires some urgency to be applied to establishing an integrated and joined up strategic and operational plan.”
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 31 March 2017, changes to the FTSE350 constituents, and newly released financial disclosures, the estimated aggregate assets were £739 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.
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