FTSE350 pension deficits stable as UK triggers Article 50

At 31 March 2017, asset values were £739 billion (representing an increase of £4 billion compared to the corresponding figure of £735 billion at 28 February 2017), and liability values remained the same at £872 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 £137 billion to £133 billion,” said Alan Baker, head of DB solutions at Mercer. “The quoted funding level improved slightly from 84 per cent to 85 per cent 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, said: “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 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.