FTSE 350 Pension deficits fall despite political and economic uncertainty

According to Mercer’s Pensions Risk Survey data, at 31 May 2017, asset values were £749bn (an increase of £10 billion compared to the corresponding figure of £739 billion at the end of April 2017), and liability values fell by £1 billion to £883 billion compared to £884 billion at the end of April.

“The improvement in the funding level over May was predominantly due to an increase in asset values which reached another new high. Liability values remained substantially unchanged with a reduction in long dated corporate bond yields being offset by a reduction in the market’s expectation for long-term inflation,” said Ali Tayyebi, Senior Partner at Mercer. “With stock markets around the world at all-time highs, trustees and companies should consider the merits of putting in place some downside protection for such assets.” continued Mr Tayyebi.

Le Roy van Zyl, Partner at Mercer, added: “With funding levels only showing marginal improvement at end May, it is too early for any sense of relief. Indeed, at times during the month equity markets and long term interest rates were showing renewed signs of uncertainty. With this uncertainty likely to persist for an extended period (e.g. around the Brexit outcome and the economic developments in the US), Trustees and Companies need to reassess whether they can continue to “wait for better times”, given the risk of conditions actually worsening. The majority of risk management steps are actually more a matter of “when to implement”, rather than “should we implement”. Seen in this context, it may well be better to be more realistic about when is the right time to take action. Building a business plan around the resultant actions can then drive a significant change for the benefit of all the stakeholders.”

Mercer’s data relates to about 50 per cent 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.