Pension deficit for defined benefit schemes in the FTSE 350 companies decreased by £9 billion in June to £48 billion.
In Mercer’s latest Pensions Risk Survey it was found that liabilities had increased by £4bn to £860bn - due to a .07 per cent fall in corporate bond yields. This, however, was mitigated by a .05 per cent decline in market implied inflation.
The rising liability values were compensated by a £13bn increase in assets from the end of May - closing in June at £812bn.
Mercer are advising that trustees must continue to prioritise risk management in the face of uncertainty with Brexit and the Prime Minister’s resignation – which is likely to cause the markets to be unstable in the coming months.
Maria Johannessen - a Partner at Mercer - stated:
“This month’s improvement in funded status is a positive turn after a period of three months where changes to the FTSE 350 pension deficit have been negligible. Despite a £4 billion uptick in liabilities, the £13 billion increase in asset values led to the deficit falling by £9 billion in June, the most significant monthly improvement in funding levels since November 2018. The fall in market implied inflation to 3.39% was enough to offset the drop in corporate bond yields which decreased by 0.7% to 2.25%.”
Charles Cowling - an Actuary at Mercer - commented:
“In spite of the welcome decline in the deficit this month, significant macroeconomic and political headwinds remain. The UK awaits a new Prime Minister following Theresa May’s resignation last month and Britain’s negotiating position on Brexit is far from clear. A combination of global trade tensions and an increased perceived likelihood of a no-deal Brexit, means we expect market volatility to be a consistent feature of the months ahead. Lower energy prices and weakening UK growth are reflected in CPI inflation falling back recently. However, a Brexit sterling crisis and resulting inflation shock is still a real possibility. In this uncertain environment trustees should continue to prioritise risk management and actively seek to take advantage of market opportunities to de-risk.”
The data published by Mercer concerns 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 information underlying the survey is refreshed as companies report on their end of year accounts. Other measures are also relevant for trustees and employers considering their risk exposure.
